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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1994
Commission File Number 0-6955
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WALBRO CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 38-1358966
(State of Incorporation) (I.R.S. Employer ID No.)
6242 Garfield Street, Cass City, Michigan 48726
(Address of principal executive offices) (Zip Code)
(517) 872-2131
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.50 par value
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /
The aggregate market value of the registrant's voting stock held by
non-affiliates of the registrant, based upon the last reported sale price of
the registrant's Common Stock on February 28, 1995.
$146,611,375
The number of shares outstanding of the registrant's Common Stock, par
value $.50, as of March 20, 1995.
8,564,576
DOCUMENTS INCORPORATED BY REFERENCE
Certain sections of the registrant's Annual Report to Stockholders for the
fiscal year ended December 31, 1994 and of the registrant's Notice of Annual
Meeting of Stockholders and Proxy Statement for its Annual Meeting of
Stockholders to be held on April 19, 1995 are incorporated by reference into
Parts II and III of this report.
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PART I
ITEM 1. BUSINESS
GENERAL
Walbro Corporation (the "Company") designs and manufactures a wide
range of precision fuel systems products which increase fuel economy and reduce
emissions for the global automotive and small engine markets. The Company
manufactures electric fuel pumps, fuel modules, plastic fuel tanks, fuel level
sensors and fuel rails for sale to automobile manufacturers. Products
manufactured for the small engine market include carburetors and ignitions for
chain saws, outboard marine engines, two-wheeled vehicles, industrial engines
and lawn and garden equipment, such as lawn mowers and weed trimmers.
Management believes that the Company is well positioned to exploit the
continuing challenges facing its customers as a result of growing environmental
awareness and regulation. In the automotive market, the Company's current line
of fuel delivery products was developed in response to the dramatic changes in
automotive technology imposed by worldwide governmental fuel economy and
exhaust emission regulations and changing consumer demands over the past two
decades. The Company continues to work with its automotive customers to
develop a new generation of products designed to satisfy future demands in
these areas, such as greater fuel efficiency, reduced component weight,
improved product durability, gasoline vapor control (evaporative emissions) and
the use of alternative fuels. As the worldwide auto market faces substantial
new or more significant emission controls, the Company, through its facilities
and those of its European, South American and Asian joint ventures, is
positioned to offer its current and future fuel systems technology to the
global automotive markets. The Company's small engine market is facing
significant emissions regulations for the first time in its history. These
regulations are likely to re-shape the entire small engine market. Management
believes that the Company's small engine fuel systems experience and market
position, combined with its experience in responding to and anticipating
emissions-driven challenges in the automotive sector, provide the Company with
significant opportunities to serve this redefined market.
Approximately 61% of the Company's 1994 revenues were generated by the
automotive operations and approximately 39% by the small engine operations. In
addition, the Company is involved in four joint ventures through which it is
able to gain access to foreign markets, technology and foreign manufacturing
facilities. The Company holds strong market positions in both the automotive
and small engine markets. Management believes that, in the U.S. automotive
market, the Company designs fuel pumps for over 90% of Ford Motor Company's
automobiles and light trucks and currently manufactures approximately 40% of
Company-designed fuel pumps, with Ford manufacturing the balance. The Company
supplies all fuel module requirements for Ford light trucks and, according to
management's estimates, supplies approximately 32% of Ford's fuel rail needs.
Management also estimates that the Company supplies Chrysler Corporation with
approximately 72% of its fuel pump and fuel module requirements. Other
automotive customers of the Company (and its joint ventures) include Fiat,
Jaguar, Peugeot-Citroen ("PSA"), Renault, Rover, Saab, Volvo, Daewoo, Hyundai
and Kia. The Company believes that, based on data for 1994, it is the world's
largest independent manufacturer of small engine carburetors, with an
approximate 76% market share of the global small engine diaphragm carburetor
market and an approximate 15% market share of the global small engine float
feed carburetor market.
Management believes that the Company's principal strengths include its
"systems" approach to product development, which offers substantial benefits to
its customers by providing integrated rather than individual components; the
Company's technological and engineering capabilities, which allow the Company
to respond to the market and environmental demands facing its customers; the
Company's
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international manufacturing and market presence, allowing it to respond to new
worldwide environmental and regulatory challenges; and the Company's
manufacturing processes which allow it to produce high quality products
efficiently. Management's strategies for future revenue and income growth
include shifting the Company toward becoming a supplier of subsystems rather
than components to automobile manufacturers to allow the Company to increase
revenue from each automobile in which its products are installed; expanding the
Company's presence in foreign markets to give the Company an opportunity to
develop significant relationships with new customers; developing new products;
and acquiring companies with complementary products and technologies.
The Company operates through two autonomous subsidiaries. Walbro
Automotive Corporation provides the Company with an expanded technical and
management presence in the Detroit, Michigan area and places further emphasis
on the Company's systems and technological approach to customer service in the
automotive market. Walbro Engine Management Corporation focuses on designing
new products to meet the growing environmental demands on small engine
manufacturers while continuing to manage production capacity for its products
in the small engine markets. Walbro Corporation, the parent company, provides
executive, financial and advanced research services to both Walbro Automotive
Corporation and Walbro Engine Management Corporation. The Company believes
this organization provides a cost-effective approach toward the Company's major
markets, by providing the improved focus, accountability, flexibility and
responsiveness needed to succeed in today's global marketplace.
In the automotive industry, the Company's goal is to supply automobile
manufacturers with a complete fuel storage and delivery system ("FSDS"), which
will comprise all components from the filler neck and closure devices to the
fuel rail. The core of the FSDS will be an advanced version of the Company's
fuel pump technology along with other key components, including the plastic
fuel tank, fuel module and fuel rails which the Company currently sells to its
automotive customers. Other components of the complete FSDS which the Company
intends to sell include a filler neck with on-board vapor recovery and closure
devices and a number of sensors, valves and fuel lines. Management estimates
that a complete FSDS system could represent a cost of approximately $180 - $210
per vehicle in which it is installed. This system will meet the same needs as
current fuel delivery systems as well as addressing the challenges of being
compatible with the corrosive nature of flexible fuels and eliminating fuel
vapor loss into the atmosphere. Toward achieving the goal of becoming a
complete FSDS supplier, the Company began the manufacture of plastic fuel tanks
for automotive applications during 1994.
In the small engine sector, the Company is devoting resources to
developing a small engine management system to meet the shift in customer needs
which it expects will result from government mandated emissions standards. The
Company is also implementing cost reduction programs and focusing on managing
production capacity to respond to changes in demand.
The Company was incorporated in Michigan in 1950 and reincorporated in
Delaware in 1972. Unless the context indicates otherwise, all references to
"the Company" include Walbro Corporation and its consolidated subsidiaries.
The Company's principal executive offices are located at 6242 Garfield Street,
Cass City, Michigan 48726-1325, and its telephone number is (517) 872-2131.
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AUTOMOTIVE MARKET
OVERVIEW
During the late 1970s and early 1980s U.S. automotive fuel systems
evolved from carbureted mechanical control systems to a more sophisticated
engine management system. The resulting system is composed of an
electronically controlled fuel injection system ("EFI") and several subsystems
which provide emission control functions as well as improved performance and
fuel economy. During this transition, the automotive manufacturers moved from
the purchase of individual components to the purchase of subsystems. Recent
governmental action in many other parts of the world is forcing the transition
from mechanical fuel control to engine management systems. For example, the
European Economic Community, which previously had minimal automotive exhaust
regulation, has adopted exhaust standards comparable to 1983 U.S. requirements.
The fuel tank and its attached components, the FSDS, function to store
and deliver fuel to the engine. The core technology of the delivery system is
an electric pump, mounted in the tank, designed to pump fuel to the engine.
The pump is normally fastened to a bracket and flange assembly, which allows
the pump to be installed in the fuel tank. This assembly also contains an
electrical connector and a filter screen and is connected to a fuel supply line
and a fuel return line. This assembly can be replaced with a single integrated
unit, called a fuel module, which performs all of the functions of the assembly
described above, and in addition, provides a fuel reservoir to enhance
performance of the fuel delivery system under low fuel conditions.
A fuel level sensor which is incorporated into a FSDS may be attached
to the bracket and flange assembly or may be incorporated into the fuel module.
A fuel rail, located on the engine, receives fuel supplied by the fuel pump and
distributes it to the fuel injectors.
The Company specializes in technology employed in the FSDS and
currently manufactures and sells fuel pumps, plastic fuel tanks, fuel modules,
bracket assemblies, fuel level sensors and fuel rails.
PRODUCTS
In the automotive sector, the Company designs, develops and
manufactures products for fuel storage and delivery systems for passenger
automobiles and light trucks. Bringing a "systems" perspective to its
customers, the Company designs its products to operate as part of an integrated
fuel storage and delivery system. The Company's willingness to assume
responsibility for the development of such products allows original equipment
manufacturers ("OEMs") to reduce internal engineering efforts, to utilize fewer
suppliers and to assemble subsystems rather than components.
The Company's product development engineers design fuel storage and
delivery products in response to customers' needs and in anticipation of
evolving needs of the market. Competition, government regulation and
environmental concerns have created a demand for improved fuel handling systems
in motor vehicles. Today's EFI equipped engines demand an uninterrupted supply
of fuel under pressure and some vehicles require complex fuel tank
configurations which create new challenges for fuel delivery systems.
In response to the environmental and fuel efficiency demands on
today's automobiles, the Company has developed, and is continually taking steps
to improve, an electric pump designed to deliver fuel under pressure to EFI
equipped engines. The Company also designs and manufactures a fuel module -- a
complete, value-added package for specific applications composed of fuel pump,
plastic reservoir, fuel level sensor and related parts. These injection-molded
plastic units fit inside the fuel tank, ensuring
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fuel delivery under low fuel conditions, maximum vehicle driving range and
enhanced fuel delivery under high temperature conditions, all at a reduced
noise level.
The Company also produces fuel rails suitable for a variety of engine
applications. An extension of the FSDS concept, these under-hood components
deliver fuel to the individual fuel injectors used in electronic multi-point
fuel injection systems. The Company's fuel rails include a patented,
award-winning, "low profile" rail that allows designers to lower hood lines for
better aerodynamics and improved fuel economy, as well as offering cost
savings. Extending the Company's fuel rail technology, the Company has
designed a plastic fuel rail which is superior to metal fuel rails in cost,
weight and reaction to flex fuels. Ford and Chrysler have each chosen to
install this new rail on a model beginning in 1994 and 1995, respectively.
During 1993, the Company built a new facility in Ossian, Indiana to
produce plastic multi-layer fuel tanks. Plastic fuel tanks offer several
advantages over conventional steel tanks, including lighter weight, greater
corrosion resistance, and the ability to be produced in unusual shapes to
better utilize available space. The multi-layer construction of the new Walbro
tanks will satisfy governmental requirements aimed at eliminating hydrocarbon
losses caused by permeation. In addition, the plastic tanks are unaffected by
new, cleaner-burning fuels like methanol that corrode steel tanks.
Approximately 20% of U.S. automobiles and 65% of European automobiles currently
contain plastic tanks. However, plastic tanks produced by other U.S. and
European tank manufacturers permit hydrocarbon vapors to escape through the
tank walls at levels which will not be permitted by the EPA in the future. The
failure of the current plastic fuel tanks to meet permeability requirements is
being addressed by the Company through the use of highly sophisticated
multi-layer blow molding machines to produce fuel tanks which substantially
eliminate fuel permeation. The capital expenditures related to this venture
were approximately $16 million during 1993 and 1994. Plastic fuel tanks are
currently being produced for one customer, as production began in the third
quarter of 1994. In addition, the Company signed a Letter of Intent in
January, 1995 to acquire the plastic fuel tank business of Dyno Industrier AS
of Oslo, Norway. Dyno Industrier AS supplies plastic fuel tank systems to many
European vehicle manufacturers. See "Acquisitions and Joint Ventures" below
for a discussion of Dyno Industrier AS.
Management believes the Company's fuel systems products also have
features which help the Company's customers respond to developments in safety
and environmental standards. For example, recent safety and environmental
concerns call for a fuel storage and delivery system that minimizes or
eliminates the escape of gasoline vapors during refueling, storage and
operations. In January, 1994, the EPA announced regulations governing on-board
vapor recovery ("OBVR") systems as mandated by the 1990 Clean Air Act. The
regulations require installation of devices which trap hydrocarbon vapors
during refueling on a phase-in basis for passenger cars beginning in model year
1998 and for light trucks in model year 2001. In anticipation of the OBVR
regulations, the Company developed a variety of devices which respond to its
customers' specific requirements. These devices are expected to enter
production during 1996, with expanded production throughout the decade.
SALES AND ENGINEERING SUPPORT
Sales of the Company's FSDS products to the automotive OEMs are made
directly by the Company's sales/engineering force, who not only sell the
products but assist customers with related engineering matters. This
sales/engineering force works closely with the Company's engineering
departments and systems center, as well as its technical center for the
research, design, development and improvement of new products. The Company's
ability to compete is enhanced by the vehicle manufacturers' decisions to
consolidate suppliers and reduce internal engineering resources and by the
Company's capacity to provide complete engineering resources with respect to
its product line and its willingness to assume responsibility for the
development of FSDS products.
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MARKETS, CUSTOMER BASE AND COMPETITION
The current markets for the Company's FSDS products are North America,
South America, Europe and the Far East. In particular the European market for
fuel storage and delivery systems offers an opportunity for growth and
expansion for the Company. Prior to 1992, the Company generated only modest
sales in Europe. This penetration was significantly increased through the
Company's Marwal Systems joint venture, which completed its third full year of
operations in 1994, with customers that include Fiat, Jaguar, PSA, Renault,
Rover, Saab and Volvo. Due to the Company's 49% ownership in Marwal, these
revenues are not included in the Company's reported consolidated net sales. In
January 1993, operations began at the Company's Marwal do Brasil joint venture
in Brazil, which targets the South American automotive market of approximately
one million units per year. In November 1994, the Company established a joint
venture in South Korea, Korea Automotive Fuel Systems, to manufacture and
market fuel sending units for the Korean automotive market. The Company is
seeking to develop sales in Japan through its Mitsuba-Walbro joint venture.
See "Acquisitions and Joint Ventures" below for further information concerning
these joint ventures.
The North American automotive market is dominated by General Motors,
Ford, and Chrysler, although Japanese companies captured approximately 30% of
the passenger car market and 14% of the light truck market in 1994. The
Company supplies its FSDS products chiefly to Ford and Chrysler. General
Motors currently develops and produces substantially all of its fuel storage
and delivery systems in-house. The Company's marketing and systems application
engineering efforts in the United States are directed out of the Detroit area
headquarters of Walbro Automotive Corporation. Although the Company does not
currently supply products to the Japanese manufacturing plants located in the
U.S., management believes that Mitsuba-Walbro and its efforts in the Japanese
markets will enhance the Company's long-term prospects to obtain future
business from the U.S. operations of the Japanese OEMs.
Sales to the Company's largest customer, Ford, accounted for 30% of
the Company's consolidated sales in 1994, 30% in 1993 and 33% in 1992. Sales
to Chrysler accounted for 23%, 21% and 20% of the Company's consolidated sales
in 1994, 1993 and 1992, respectively. Both of these customers have ongoing
supply relationships with the Company which are subject to continued
satisfactory price, quality and delivery. The Company is the primary outside
supplier of fuel pumps, the core of the FSDS, to Ford and Chrysler. General
Motors does not outsource its fuel pump needs. In the past, the Company has
leveraged its fuel system components penetration to supply additional fuel
systems products, such as fuel modules and fuel rails, to Ford and Chrysler as
well as to assume a key role in the development of new fuel systems products,
such as on-board vapor recovery devices. Management expects that future
improvements to its customers' automotive fuel systems will occur as a result
of development partnerships between the Company and its OEM customers and will
focus on products that work as an integrated fuel storage and delivery system
based on the Company's fuel pump core technology. Management believes that
this approach positions the Company to increase its revenue per vehicle through
the manufacture of additional value added components and subsystems in the
future.
The Company competes with several other manufacturers, including the
automobile companies themselves, all of which have greater sales and financial
resources than the Company. Management believes that the Company's established
relationships with Ford and Chrysler and the difficulty for these OEMs to
change suppliers may lessen the risk of loss of significant business due to
competition.
WARRANTY AND OTHER PRODUCT EXPOSURE
The design and manufacture of fuel systems entails an inherent risk
that a governmental authority or a customer may require the recall of one of
the Company's products or a product in which one of the Company's products has
been installed. The Company has taken and intends to continue to take all
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reasonable precautions to avoid the risk of exposure to an expensive recall
campaign which could have a material adverse effect on the business and
financial condition of the Company. The Company does not believe that any
insurance is available to protect against potential product recall/warranty
liability.
ACQUISITIONS AND JOINT VENTURES
In select situations the Company has acquired fuel systems product
manufacturers whose products could be integrated with the Company's traditional
products as a part of the Company's system development focus. These
acquisitions have contributed new product markets and technology to the
consolidated Company. In evaluating these acquisitions, the Company sought
high quality operations which fit with the Company's expertise in markets where
the Company had an established customer base and a clear vision of
opportunities, decreasing transition costs and other financial risks associated
with corporate acquisitions.
In January, 1995, the Company signed a letter of intent to acquire the
Fuel Tank Division of Dyno Industrier AS of Oslo, Norway ("Dyno") which had
1994 sales of approximately U.S. $150 million. Dyno designs, manufactures and
markets plastic fuel tank systems to many European vehicle manufacturers and
has operations in France, Spain, Norway, Great Britain, Germany and Belgium.
This acquisition will expand the Company's European automotive capabilities in
the area of fuel storage and delivery systems which parallels its North
American strategy. In addition, this fuel tank acquisition provides a major
position for the Company in the European fuel system supply base.
As part of a long-term strategy for growth and expansion into new
geographic and product markets in the automotive sector, the Company has
undertaken strategic alliances in the form of joint ventures. Each of the
Company's joint ventures provides the Company with the opportunity to exploit
established customer relationships or unique technological advancements which
the Company could not develop on its own without great risk and expense. In
management's opinion, the Company's joint ventures ultimately reduce the cost
of penetrating new markets and limit the Company's financial exposure with
respect to these operations.
In November, 1994, the Company entered into a joint venture
arrangement with Daewoo Precision Industries Ltd. of South Korea ("Daewoo").
The entity established by this joint venture, Korea Automotive Fuel Systems
Ltd. ("KAFS"), manufactures and markets fuel delivery systems (including fuel
pumps and in-tank reservoirs) for the Korean automotive market. Daewoo owns
51% of KAFS and the Company owns 49%.
In February, 1995, the Company signed an amendment to its 1991 joint
venture agreement with Magneti Marelli S.p.A. of Italy ("Magneti Marelli"), an
affiliate of the Fiat Group of companies, through its subsidiary, Jaeger, S.A.
The amendment changes the organizational structure of the joint ventures with
Magneti Marelli, Marwal Systems, S.A. and Marwal do Brasil Ltda., authorizes
the formation of a new joint venture in Mexico, and changes the scope of
products manufactured at Marwal Systems and Marwal do Brasil. Marwal Systems
manufactures and markets fuel delivery systems for the European automotive
market and Marwal do Brasil manufactures and markets fuel delivery systems for
the South American automotive market. Marwal Systems will own 100% of Marwal
do Brasil and 95% of the new company to be formed in Mexico, with 5% owned by
the Company. Magneti Marelli owns 51% of Marwal Systems and the Company owns
49%.
In addition, the Company previously entered into a joint venture known
as Mitsuba-Walbro, Inc. with Mitsuba Electric Manufacturing Company.
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SMALL ENGINE MARKETS
OVERVIEW
The Company was founded as a manufacturer of carburetors for small
engine products such as lawn mowers and marine engines, with later additions of
chain saws, weed trimmers, snow blowers and two-wheeled vehicles adding to the
Company's customer base. The Company's carburetor technology has continually
evolved, with the Company now manufacturing diaphragm and float feed
carburetors, ignition systems and other components for small engine products.
For the first time, the small engine industry faces emission
regulations. In 1990 the California Air Resources Board promulgated
comprehensive air quality regulations which limit small engine emissions.
These regulations will become effective in 1995. Management does not believe
this phase of regulation will adversely affect its business. A more stringent
phase is scheduled to become effective in 1999. The implementation of the 1999
California air quality regulations could significantly impact the number of
units the Company sells of its current carburetor models, especially diaphragm
carburetors, and if adopted nationally, the more stringent regulations would
seriously affect total unit sales of the Company's carburetors. Fuel delivery
products for hand- held power products are the most vulnerable to a decrease in
demand because the cost of compliance with the emissions standards could force
lower priced, gasoline-powered lawn and garden equipment off the market in
favor of electric-powered equipment.
Management believes that a non-electric portable power equipment
market will remain following the implementation of federal emissions controls.
Many products including commercial chain saws, commercial lawn and garden
equipment and other industrial engine applications, cannot function effectively
using current electric power technology. This market will require a more
sophisticated engine management system capable of meeting stringent emission
regulations. In anticipation of this market, the Company has devoted
substantial engineering resources to the development of fuel metering systems
and engine management systems which can provide product alternatives to meet
stringent emission standards, equipping its small engine engineering facilities
with sophisticated emission measurement equipment. The Company's extensive
fuel systems knowledge and ignition expertise provide the technology necessary
to develop these engine management systems. Although unit sales may be lowered
by emissions regulations, these sophisticated products are expected to command
a higher unit price. The overall effect of emission regulation could be
beneficial to the Company, although it is not yet possible to clearly determine
the probable impact of these developments on the Company.
In response to these emissions regulations, the Company began to
integrate its carburetor and ignition technology in order to develop an engine
management system which will electronically control both fuel delivery and
ignition functions in order to control exhaust emissions. The Company has
successfully refined existing carburetors to meet the first set of standards
due to take effect in California in 1995 through the modification of
carburetors to incorporate extremely tight tolerances to provide more accurate
control of the fuel/air mixture. The Company engineers are developing new
technology to meet the subsequent requirements which will become effective in
1999. This development effort includes complete engine management systems that
control air flow, fuel delivery and ignition timing in order to enhance
efficiency and reduce pollution.
PRODUCTS
The Company manufactures diaphragm and float feed carburetors for
original equipment and aftermarket applications. The Company also manufactures
ignition systems and is currently developing
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engine management systems that would electronically control both fuel delivery
and ignition functions in order to reduce exhaust emissions.
The diaphragm carburetor utilizes a series of pulsing diaphragms to
draw and regulate the amount of fuel delivered to the engine from the fuel
tank. The Company manufactures several basic models of diaphragm carburetors
from which are derived numerous variations. Diaphragm carburetors are used on
chain saw and weed trimmer engines because they will operate in any position
and minimize vapor lock. The Company believes that it is the world's largest
manufacturer of small engine diaphragm carburetors.
The float feed carburetor utilizes a float in a reservoir of fuel to
regulate the amount of fuel delivered to the engine. In contrast to the
diaphragm carburetor, which operates in all positions, the float feed
carburetor operates only in an upright position. The Company manufactures
several basic models of float feed carburetors from which are derived numerous
variations. The Company's float feed carburetors are used on engines for lawn
mowers, garden tractors, two-wheeled vehicles, outboard motors, generators and
industrial engines.
The ignition system utilizes rotating magnets in a flywheel, which
induce an electrical charge in the ignition module. The ignition module
releases this charge to the spark plug. The Company's ignition systems are
used predominantly in chain saw and weed trimmer applications.
MARKETS, CUSTOMER BASE AND COMPETITION
The Company sells its small engine products in a global market.
Carburetors and small engine ignitions are sold by the Company's
sales/engineering staff directly to engine manufacturers.
The Company sells a major portion of its diaphragm carburetors to most
of the leading chain saw and weed trimmer manufacturers. The Company sells
float feed carburetors to several of the leading domestic manufacturers of
small engines, including the world's largest small engine manufacturer. A
major outboard engine manufacturer buys all of its carburetors from the
Company. Eight of the Company's small engine customers collectively account
for approximately 74% of small engine product sales and 23% of the Company's
consolidated sales.
The Company has several competitors that manufacture diaphragm
carburetors for the global small engine market, some of which are divisions of
large diversified organizations which have total sales and financial resources
exceeding those of the Company. In the market for float feed carburetors and
small engine ignitions, the Company has several competitors, including engine
manufacturers, some of which have greater sales and financial resources than
the Company.
AFTERMARKET
The Company sells automotive aftermarket products for both carbureted
vehicle applications and EFI vehicle applications through independent
distributors, jobbers and dealers worldwide. Some automotive products are also
sold to national manufacturing and distribution organizations for sale under
private brand names or to industrial customers for special applications.
Management believes that the overall market size for automotive EFI
components sold to the aftermarket will continue to grow as the EFI equipped
vehicle fleet ages. This will create an expanded aftermarket opportunity for
the company's line of EFI components.
The Company sells its own brand name small engine aftermarket products
through independent distributors, jobbers and dealers worldwide. Some of these
products are also sold to national
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manufacturing and distribution organizations for sale under private brand names
or to industrial customers for use in special applications.
ACQUISITIONS AND JOINT VENTURES
Effective in early 1994, the Company acquired a 60% interest in Fujian
Hualong Carburetor Co. Ltd., which manufactures and markets carburetors for
two-wheeled vehicles for the Chinese market.
MANUFACTURING AND FACILITIES
The Company and its joint ventures manufacture automotive products in
factories located in Cass City and Caro, Michigan; Ligonier and Ossian,
Indiana; Meriden and Wallingford, Connecticut; Chalons, France; Kiryu City,
Japan and Sao Paulo, Brazil. The Company's small engine products are
manufactured in Cass City, Michigan; Miyagi Prefecture, Japan; Singapore;
Nogales, Mexico; and Fujian Province, China. The Company has not experienced
significant limitations on its ability to transfer products between, or sell
products in, various countries.
Each of the above manufacturing facilities practices advanced
inventory control procedures and has installed statistical process controls to
insure high levels of quality. In that regard, some of the factories listed
above have received the Ford Q1 Award and the Chrysler Pentastar Award.
Various other Company factories have been recognized by Mercury Marine, Stihl
and Briggs & Stratton for excellence in product quality and delivery.
When justified by volume, the Company has invested in labor-saving
automated machining, assembly and testing equipment. For example, the
operation in Meriden, Connecticut employs computer controlled molding machines
to form the Company's plastic in- tank reservoirs. These machines are
individually programmable so that variations can be reduced and refined as part
of the continuous control process. Another example is the Caro, Michigan
manufacturing facility's automated fuel pump assembly line, which is capable of
producing 1,000 pumps per hour using only six persons. In addition to these
examples of purchased automation, the Company designs and builds major portions
of its own machining and assembly equipment. This in-house capability permits
close control over the manufacturing process and helps the Company stay
competitive in both cost and quality.
The Company is headquartered in Cass City, Michigan. Its Engine
Management Corporation subsidiary is also headquartered in that location, and
its Automotive Corporation subsidiary is headquartered in Auburn Hills,
Michigan.
PATENTS, RESEARCH AND PRODUCT DEVELOPMENT
The Company owns a number of patents in the fuel systems field and has
a number of applications pending. These patents include proprietary ownership
of designs for control devices for engines and engine systems, fuel pumps, fuel
rails, fuel regulators, fuel level sensors, fuel reservoirs and fuel system
vapor control devices, carburetors and throttle bodies, as well as ancillary
devices for engine and vehicle applications. The Company also has licensed
proprietary ignition system technology from AB Svenska Elektromagneter of Amal,
Sweden, a Swedish ignition manufacturing company.
Although these patents are significant to the Company, management
believes that in many cases the adaptation and utilization of the technology
involved and the proprietary process technology employed to manufacture these
products are more important. The Company maintains a technical center in
Michigan for the research, design and development of new products. The
Company's engineering
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departments also engage in the design, development and testing of new products
as well as the improvement of existing products. In 1994, 1993 and 1992, the
Company spent approximately $12.2 million, $9.5 million and $9.0 million,
respectively, for engineering and research and product development.
COMPONENT MATERIALS/INVENTORY
The Company has a number of sources for the components used in
manufacturing its products. The suppliers who manufacture components often
utilize tools and dies owned by the Company. If a supplier were to discontinue
supplying any component, it could take the Company some time to replace the
supplier; however, the Company believes its operations would not be materially
adversely affected.
The Company's principal customers provide it with estimates of their
annual needs and make monthly purchase commitments. As a result, the Company
does not experience material backlog. Consequently, the Company manages its
manufacturing facilities on a just-in-time supply basis and does not maintain a
finished product inventory of any significance.
EMPLOYEES
As of February 28, 1995, the Company had approximately 3,196
employees. The Company believes that its relations with its employees are
satisfactory. All of the Company's United States plant employees are
non-unionized except those employed at its Michigan locations. The Company's
three-year contract with the bargaining unit for these Michigan plants expires
in November 1995.
REGULATION
As discussed above, most of the Company's customers are subject to
increasingly strict safety and environmental regulations. To the extent these
regulations adversely affect the number of units produced by its customers, the
Company's sales may be adversely affected. The Company's fuel systems
products, however, have features which help its customers meet applicable
safety and environmental standards. To the extent the Company's products
assist its customers in meeting these standards, the Company's dollar sales may
be enhanced by these regulations.
The Company is subject to various federal, state and local laws and
regulations relating to plant safety and air and water pollution. The
Company's compliance with these laws and regulations has not materially
affected the results of its operations or the conduct of its business; however,
the Company cannot predict the future effects of such laws or regulations.
10
<PAGE> 12
ITEM 2. PROPERTIES
The Company believes that substantially all of its property and
equipment is in good condition. In total, the Company owns approximately
720,000 square feet of space and leases an additional approximately 125,000
square feet as set forth below.
<TABLE>
<CAPTION>
APPROXIMATE WHEN OWNED OR
LOCATION SQ. FEET BUILT LEASED FUNCTION
------------------------- ------------ --------- ---------- ----------------------------------
<S> <C> <C> <C> <C>
Cass City, MI 180,700 1954-88 Owned Office and Manufacturing
Caro, MI 67,400 1954-88 Owned Office and Manufacturing
Auburn Hills, MI 34,000 1986 Owned Office and Engineering Laboratory
Auburn, MI 48,500 1954-78 Owned Storage
Ligonier, IN 150,000 1992 Owned Office and Manufacturing
Ossian, IN 60,000 1993 Owned Office and Manufacturing
Miyagi Prefecture, Japan 25,000 1973-76 Owned Office and Manufacturing
Tokyo, Japan 2,900 1990 Leased Office
Meriden, CT 112,600 1953-65 Owned Office and Manufacturing
Wallingford, CT 41,900 1973 Leased Office and Manufacturing
Nogales, AZ 9,525 1988 Owned Office and Manufacturing
Nogales, Sonora, Mexico 42,000 1973 Leased Office and Manufacturing
Nogales, Sonora, Mexico 17,750 1991 Leased Office and Manufacturing
Seoul, Korea 15,000 1990 Leased Office and Engineering Laboratory
Singapore 35,000 1989 Owned Office and Manufacturing
Windsor, Ontario, Canada 5,300 1989 Leased Office
</TABLE>
In addition to the facilities listed above, through various joint
ventures described above, the Company has access to manufacturing facilities of
approximately 100,000 square feet in Chalons, France (Marwal Systems), 30,000
square feet in Kiryu City, Japan (Mitsuba-Walbro), 40,000 square feet in Sao
Paulo, Brazil (Marwal do Brasil) and 38,000 square feet in Fuding County,
Fujian Province, China (Fujian Hualong Carburetor Co. Ltd.).
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any litigation, and is not aware of any
pending or threatened litigation, that would have a material adverse effect on
the Company or its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of 1994.
11
<PAGE> 13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Incorporated by reference to "Common Stock Price and Dividend
Information" on page 14 of the Company's Annual Report to Stockholders for the
fiscal year ended December 31, 1994 (the "1994 Annual Report").
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
Incorporated by reference to "Selected Financial Data" on page 10 of
the 1994 Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Incorporated by reference to "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages 10 through 14 of
the 1994 Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated by reference herein from the following sections of the
1994 Annual Report. The consolidated statements of income, cash flows and
stockholders' equity are for each of the years ended December 31, 1994, 1993
and 1992 and the consolidated balance sheets are as of December 31, 1994, 1993
and 1992:
Report of Independent Public Accountants, page 15.
Consolidated Balance Sheets, page 16.
Consolidated Statements of Income, page 17.
Consolidated Statements of Stockholders' Equity, page 18.
Consolidated Statements of Cash Flows, page 19.
Notes to Consolidated Financial Statements, pages 20 through 32.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
12
<PAGE> 14
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference to "Election of Directors" on pages 2
through 7, "Identification of Other Executive Officers" on page 11 and
"Compliance with Section 16(a) of the Exchange Act" on page 12 of the Company's
Notice of Annual Meeting of Stockholders and Proxy Statement for its Annual
Meeting of Stockholders to be held on April 19, 1995 (the "1995 Proxy
Statement").
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference to "Executive Compensation" on pages 13
through 18 and "Compensation of the Board of Directors" on page 7 of the 1995
Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference to "Security Ownership of Management" on
pages 9 and 10 of the 1995 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference to "Indebtedness of Management" on page 12
of the 1995 Proxy Statement.
13
<PAGE> 15
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Form 10-K:
1. The following consolidated financial statements of
the Company and its subsidiaries, together with the applicable
report of independent public accountants, included in the 1994
Annual Report, are incorporated by reference in Item 8:
Report of Independent Public Accountants.
Consolidated Balance Sheets at December 31, 1994,
1993 and 1992.
Consolidated Statements of Income for the years ended
December 31, 1994, 1993 and 1992.
Consolidated Statements of Stockholders' Equity for
the years ended December 31, 1994, 1993 and 1992.
Consolidated Statements of Cash Flows for the years
ended December 31, 1994, 1993 and 1992.
Notes to Consolidated Financial Statements.
2. The following consolidated financial information of
the Company and its subsidiaries for the three years ended
December 31, 1994 is filed as part of this Form 10-K on pages
20 and 21.
Report of Independent Public Accountants.
Supplemental Note to Consolidated Financial
Statements.
The information required to be submitted in Schedule
II is included in the supplemental note to
consolidated financial statements.
3. The following exhibits are filed with this report or
incorporated by reference as set forth below.
Exhibit No.
3.1 Restated Certificate of Incorporation of the Company,
filed as Exhibit 3.1 to the Company's 1989 Annual
Report on Form 10-K, incorporated herein by reference.
3.2 By-laws of the Company, as amended, filed as Exhibit
3.2 to the Company's 1989 Annual Report on Form 10-K,
incorporated herein by reference.
3.3 Amendment to Section 2.9 of the By-laws of the Company.
14
<PAGE> 16
4.1 Credit Agreement among NBD Bank, N.A., Manufacturers
Bank, N.A. and the Company, dated as of January 15,
1992, filed as Exhibit 4.6 to the Company's 1991
Annual Report on Form 10-K, incorporated herein by
reference.
4.2 First Amendment to Credit Agreement among NBD Bank,
N.A., Manufacturers Bank, N.A. and the Company, dated
as of March 10, 1992, filed as Exhibit 4.7 to the
Company's 1992 Annual Report on Form 10-K,
incorporated herein by reference.
4.3 Second Amendment to Credit Agreement among NBD Bank,
N.A., Manufacturers Bank, N.A. and the Company, dated
as of May 1992, filed as Exhibit 4.8 to the Company's
1992 Annual Report on Form 10-K, incorporated herein
by reference.
4.4 Third Amendment to Credit Agreement among NBD Bank,
N.A., Manufacturers Bank, N.A. and the Company, dated
as of January 28, 1993, filed as Exhibit 4.9 to the
Company's 1992 Annual Report on Form 10-K,
incorporated herein by reference.
4.5 Shareholder Rights Plan, dated December 8, 1988, filed
as the Exhibit to the Company's Registration Statement
on Form 8-A for Shareholder Stock Purchase Rights
filed December 12, 1988, incorporated herein by
reference.
4.6 First Amendment to Rights Agreement, dated February 6,
1991, filed as Exhibit 4.8 to the Company's 1990
Annual Report on Form 10-K, incorporated herein by
reference.
4.7 Loan Agreement between City of Ligonier, Indiana and
Sharon Manufacturing Company, dated as of June 1,
1992, filed as Exhibit 4.12 to the Company's 1992
Annual Report on Form 10-K, incorporated herein by
reference.
4.8 Loan Agreement between Walbro Automotive Corporation
and the Town of Ossian, Indiana, dated as of December
1, 1993, filed as Exhibit 4.13 to the Company's 1993
Annual Report on Form 10-K, incorporated herein by
reference.
4.9 Note Agreement among the Company and the purchasers
named therein, dated as of October 1, 1994, relating
to the 7.68% Senior Notes of the Company.
10.1 The Company's 1983 Incentive Stock Option Plan, filed
as the Exhibit to the Company's Registration Statement
on Form S-8, filed November 15, 1989, incorporated
herein by reference.**
10.2 Joint Venture Agreement between the Company and
Mitsuba Electric Manufacturing Company, Ltd., dated
December 12, 1986, filed as Exhibit 10.4 to the
Company's 1986 Annual Report on Form 10-K,
incorporated herein by reference.
10.3 The Company's Equity Based Long-Term Incentive Plan,
filed as Exhibit 4.5 to the Company's Registration
Statement on Form S-8, filed June 15, 1992,
incorporated herein by reference.**
15
<PAGE> 17
10.4 Executive Disability Plan adopted July 8, 1988, filed
as Exhibit 10.10 to the Company's 1988 Annual Report
on Form 10-K, incorporated herein by reference.**
10.5 Retirement Income Plan for Directors, dated February
9, 1988, filed as Exhibit 10.11 to the Company's 1988
Annual Report on Form 10-K, incorporated herein by
reference.**
10.6 Equipment Leasing Agreement between the Company and
NEMLC Leasing Associates No. 3, without supplements,
dated July 1, 1988, filed as Exhibit 10.13 to the
Company's 1988 Annual Report on Form 10-K,
incorporated herein by reference.
10.7 The Company's Employee Stock Ownership Plan, dated
August 15, 1989, filed as Exhibit 10.14 to the
Company's 1989 Annual Report on Form 10-K,
incorporated herein by reference.
10.8 Walbro Engine Management Incentive Compensation Plan,
filed as Exhibit 10.21 to the Company's 1990 Annual
Report on Form 10-K, incorporated herein by
reference.**
10.9 Joint Venture Agreement, dated June 17, 1991, between
the Company and Jaeger S.A, an indirect, majority-
controlled subsidiary of Magneti Marelli S.p.A.,
relating to the Marwal Systems S.A. joint venture,
filed as Exhibit 10.23 to the Company's Registration
Statement on Form S-2, File No. 33-41425, incorporated
herein by reference.
10.10 Joint Venture Agreement between the Company and Jaeger
S.A., dated as of January 1, 1993, relating to the
Marwal do Brasil joint venture, filed as Exhibit 10.10
to the Company's 1992 Annual Report on Form 10-K,
incorporated herein by reference.
10.11 Agreement among AB Svenska Elektromagneter, Opcon AB,
Cartona Fastighetsforvaltning K.B., Erling Edmundson,
Four Seasons Venture Capital AB, SEM-Walbro
Corporation and the Company, effective as of January
2, 1991, filed as Exhibit 10.20 to the Company's 1991
Annual Report on Form 10-K, incorporated herein by
reference.
10.12 The Company's Advantage Plan, filed as the Exhibit to
the Company's Registration Statement on Form S-8,
filed October 28, 1991, incorporated herein by
reference.
10.13 Aircraft Lease Agreement between the Company and
C.I.T. Leasing Corporation, dated as of October 27,
1992, filed as Exhibit 10.13 to the Company's 1992
Annual Report on Form 10-K, incorporated herein by
reference.
10.14* Joint Venture Contract among Walbro Engine Management
Corporation, Fujian Fuding Carburetor Factory and Twin
Winner Trading Co., Ltd., dated December 30, 1993,
relating to the Fujian Hualong Carburetor Co. Ltd.
joint venture.
16
<PAGE> 18
10.15* Severance Compensation and Consulting Agreement
between the Company and R. H. Whitehead III, dated as
of February 26, 1990.**
10.16* Employment Agreement between the Company and L. E.
Althaver, dated August 6, 1993.**
10.17* Severance Compensation and Consulting Agreement
between the Company and L. E. Althaver, dated as of
February 26, 1990.**
10.18* Employment Agreement between the Company and Robert H.
Walpole, dated October 1, 1993.**
10.19* Severance Compensation and Consulting Agreement
between the Company and Robert H. Walpole, dated as of
February 26, 1990.**
10.20* Employment Agreement between the Company and Gary L.
Vollmar, dated August 6, 1993.**
10.21* Severance Compensation and Consulting Agreement
between the Company and Gary L. Vollmar, dated as of
February 26, 1990.**
10.22* Employment Agreement between the Company and Daniel L.
Hittler, dated August 6, 1993.**
10.23* Severance Compensation and Consulting Agreement
between the Company and Daniel L. Hittler, dated as of
February 26, 1990.**
10.24 Agreement among the Company, Walbro Automotive
Corporation and Magneti Marelli France S.A., dated
February 7, 1995.
10.25 Joint Venture Agreement between the Company and Daewoo
Precision Industries, Ltd., dated as of November 30,
1994.
13.1 Portions of 1994 Annual Report to Stockholders. With
the exception of the information incorporated by
reference into Items 5, 6, 7, 8 and 14(a)(1) of this
Form 10-K, the 1994 Annual Report to Stockholders is
not filed as part of this report.
21.1 Subsidiaries of the Company.
23.1 Consent of Arthur Andersen LLP, independent public
accountants.
27.1 Financial Data Schedule.
--------------------------
* Filed as an exhibit, with the same exhibit number, to the Company's
Annual Report on Form 10-K for the year ended December 31, 1993 and
incorporated herein by reference.
** Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this Form 10-K.
17
<PAGE> 19
(b) Reports on Form 8-K:
The Company did not file any reports on Form 8-K during the
last quarter of the period covered by this Form 10-K.
18
<PAGE> 20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on the 21st day of
March, 1995.
WALBRO CORPORATION
By: /s/ MICHAEL A. SHOPE
-----------------------------
Michael A. Shope,
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons in the capacities
and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ LAMBERT E. ALTHAVER Chairman of the Board, President and
----------------------------- Chief Executive Officer (Principal March 21, 1995
Lambert E. Althaver Executive Officer)
/s/ MICHAEL A. SHOPE Chief Financial Officer (Principal Financial March 21, 1995
----------------------------- and Accounting Officer)
Michael A. Shope
/s/ WILLIAM T. BACON, JR. Director March 21, 1995
-----------------------------
William T. Bacon, Jr.
/s/ FRANK E. BAUCHIERO Director March 21, 1995
-----------------------------
Frank E. Bauchiero
/s/ HERBERT M. KENNEDY Director March 21, 1995
-----------------------------
Herbert M. Kennedy
/s/ VERNON E. OECHSLE Director March 21, 1995
-----------------------------
Vernon E. Oechsle
/s/ ROBERT D. TUTTLE Director March 21, 1995
-----------------------------
Robert D. Tuttle
/s/ JOHN E. UTLEY Director March 21, 1995
-----------------------------
John E. Utley
</TABLE>
19
<PAGE> 21
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and
Stockholders of Walbro Corporation:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements included in Walbro Corporation and
Subsidiaries annual report to shareholders included in this Form 10-K, and have
issued our report thereon dated February 14, 1995. Our audits were made for
the purpose of forming an opinion on those statements taken as a whole. The
supplemental note to consolidated financial statements on page 21 is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not a
required part of the basic consolidated financial statements. The information
contained in this supplemental note has been subjected to the auditing
procedures applied in the audits of the basic consolidated financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic consolidated
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Detroit, Michigan,
February 14, 1995.
20
<PAGE> 22
WALBRO CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
(1) VALUATION AND QUALIFYING ACCOUNTS
Following is a summary of changes in the valuation and qualifying
accounts for the three years ended December 31, 1994:
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
RESERVE FOR LOSS ON DISCONTINUANCE AND PLANT CLOSINGS:
Balance Beginning of Year $ -- $ 258 $ 1,400
Additions charged to operations -- -- --
Deductions (A) -- (258) (1,142)
------- ------- --------
Balance End of Year $ -- $ -- $ 258
======= ======= ========
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Balance Beginning of Year $ 413 $ 340 $ 162
Additions charged to operations 115 86 178
Deductions for uncollectible accounts
written off, net of recoveries (160) (13) --
-------- ------- --------
Balance End of Year $ 368 $ 413 $ 340
======== ======= ========
RESERVE FOR INVENTORY VALUATION:
Balance Beginning of Year $ 482 $ 669 $ 70
Additions charged to operations 159 2 644
Deductions for inventory disposal (403) (189) (45)
-------- ------- --------
Balance End of Year $ 238 $ 482 $ 669
======== ======= ========
ALLOWANCE FOR NOTES RECEIVABLE:
Balance Beginning of Year $ 214 214 $ --
Additions charged to operations 240 -- 214
Deductions -- -- --
-------- ------- --------
Balance End of Year $ 454 $ 214 $ 214
======== ======= ========
VALUATION ALLOWANCE FOR DEFERRED TAX ASSETS:
Balance Beginning of Year $ 355 $ 355 $ --
Additions charged to operations 389 355 --
Deductions -- -- --
-------- ------- --------
Balance End of Year $ 744 $ 355 $ --
======== ======= ========
</TABLE>
------------------
(A) Represents costs of discontinuance incurred subsequent to decision date.
21
<PAGE> 23
INDEX TO EXHIBITS
EXHIBITS DESCRIPTION
-------- -----------
3.3 Amendment to Section 2.9 of the By-laws of the Company.
4.9 Note Agreement among the Company and the purchasers named
therein, dated as of October 1, 1994, relating to the
7.68% Senior Notes of the Company.
10.24 Agreement among the Company, Walbro Automotive Corporation
and Magneti Marelli France S.A., dated February 7, 1995.
10.25 Joint Venture Agreement between the Company and Daewoo
Precision Industries, Ltd., dated as of November 30, 1994.
13.1 Portions of 1994 Annual Report to Stockholders. With the
exception of the information incorporated by reference into
Items 5, 6, 7, 8 and 14(a)(1) of this Form 10-K, the 1994
Annual Report to Stockholders is not filed as part of this
report.
21.1 Subsidiaries of the Company.
23.1 Consent of Arthur Andersen LLP, independent public
accountants.
27.1 Financial Data Schedule.
<PAGE> 1
EXHIBIT 3.3
AMENDMENT TO SECTION 2.9
OF THE BY-LAWS OF
WALBRO CORPORATION
Section 2.9 of the By-laws of Walbro Corporation is amended to read in its
entirety as follows:
"Section 2.9 Vote Required. In all matters other than the election
of directors, the affirmative vote of the majority of shares present
in person or represented by proxy at the meeting and entitled to vote
on the subject matter shall be the act of the stockholders. Directors
shall be elected by plurality of the votes of the shares present in
person or represented by proxy at the meeting and entitled to vote on
the election of directors."
<PAGE> 1
Exhibit 4.9
================================================================================
WALBRO CORPORATION
Note Agreement
Dated as of October 1, 1994
Re: $45,000,000 7.68% Senior Notes
Due October 1, 2004
================================================================================
<PAGE> 2
TABLE OF CONTENTS
(Not a part of the Agreement)
SECTION HEADING PAGE
SECTION 1. DESCRIPTION OF NOTES AND COMMITMENT . . . . . . . . . . . . . 1
Section 1.1. Description of Notes. . . . . . . . . . . . . . . . . 1
Section 1.2. Commitment, Closing Date. . . . . . . . . . . . . . . 1
Section 1.3. Guaranty of Notes . . . . . . . . . . . . . . . . . . 2
Section 1.4. Several Commitments . . . . . . . . . . . . . . . . . 2
SECTION 2. PREPAYMENT OF NOTES . . . . . . . . . . . . . . . . . . . . . 2
Section 2.1. Required Prepayments. . . . . . . . . . . . . . . . . 2
Section 2.2. Optional Prepayment with Premium. . . . . . . . . . . 3
Section 2.3. Prepayment upon Change of Control . . . . . . . . . . 3
Section 2.4. Notice of Optional Prepayments. . . . . . . . . . . . 4
Section 2.5. Application of Prepayments. . . . . . . . . . . . . . 5
Section 2.6. Direct Payment. . . . . . . . . . . . . . . . . . . . 5
SECTION 3. REPRESENTATIONS. . . . . . . . . . . . . . . . . . . . . . . 5
Section 3.1. Representations of the Company. . . . . . . . . . . . 5
Section 3.2. Representations of the Purchasers . . . . . . . . . . 5
SECTION 4. CLOSING CONDITIONS . . . . . . . . . . . . . . . . . . . . . 6
Section 4.1. Conditions . . . . . . . . . . . . . . . . . . . . . 6
Section 4.2. Waiver of Conditions . . . . . . . . . . . . . . . . 7
SECTION 5. COMPANY COVENANTS . . . . . . . . . . . . . . . . . . . . . . 7
Section 5.1. Corporate Existence, Etc. . . . . . . . . . . . . . . 7
Section 5.2. Insurance . . . . . . . . . . . . . . . . . . . . . . 7
Section 5.3. Taxes, Claims for Labor and Materials,
Compliance with Laws . . . . . . . . . . . . . . . 8
Section 5.4. Maintenance, Etc. . . . . . . . . . . . . . . . . . . 8
Section 5.5. Nature of Business. . . . . . . . . . . . . . . . . . 8
Section 5.6. Consolidated Adjusted Net Worth . . . . . . . . . . . 8
Section 5.7. Limitations on Funded Debt and Priority Obligations. 9
Section 5.8. Limitation on Liens . . . . . . . . . . . . . . . . . 9
Section 5.9. Mergers, Etc . . . . . . . . . . . . . . . . . . . . 11
Section 5.10. Sales of Assets . . . . . . . . . . . . . . . . . . . 12
Section 5.11. Guaranties . . . . . . . . . . . . . . . . . . . . . 12
Section 5.12. Repurchase of Notes . . . . . . . . . . . . . . . . . 13
Section 5.13. Transactions with Affiliates. . . . . . . . . . . . . 13
Section 5.14. Termination of Pension Plans. . . . . . . . . . . . . 13
-i-
<PAGE> 3
Section 5.15. Reports and Rights of Inspection. . . . . . . . . . . 14
Section 5.16. New Domestic Subsidiaries . . . . . . . . . . . . . . 16
SECTION 6. EVENTS OF DEFAULT AND REMEDIES THEREFOR. . . . . . . . . . . 16
Section 6.1. Events of Default . . . . . . . . . . . . . . . . . . 16
Section 6.2. Notice to Holders . . . . . . . . . . . . . . . . . . 18
Section 6.3. Acceleration of Maturities. . . . . . . . . . . . . . 18
Section 6.4. Rescission of Acceleration. . . . . . . . . . . . . . 19
SECTION 7. AMENDMENTS, WAIVERS AND CONSENTS. . . . . . . . . . . . . . 19
Section 7.1. Consent Required. . . . . . . . . . . . . . . . . . . 19
Section 7.2. Solicitation of Holders . . . . . . . . . . . . . . . 20
Section 7.3. Effect of Amendment or Waiver . . . . . . . . . . . . 20
SECTION 8. INTERPRETATION OF AGREEMENT; DEFINITIONS. . . . . . . . . . 20
Section 8.1. Definitions . . . . . . . . . . . . . . . . . . . . . 20
Section 8.2. Accounting Principles . . . . . . . . . . . . . . . . 29
Section 8.3. Directly or Indirectly . . . . . . . . . . . . . . . 29
SECTION 9. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . 29
Section 9.1. Registered Notes. . . . . . . . . . . . . . . . . . . 29
Section 9.2. Exchange of Notes . . . . . . . . . . . . . . . . . . 29
Section 9.3. Loss, Theft, Etc. of Notes. . . . . . . . . . . . . . 29
Section 9.4. Expenses, Stamp Tax Indemnity . . . . . . . . . . . . 30
Section 9.5. Powers and Rights Not Waived; Remedies Cumulative . . 30
Section 9.6. Notices . . . . . . . . . . . . . . . . . . . . . . . 30
Section 9.7. Successors and Assigns . . . . . . . . . . . . . . . 31
Section 9.8. Survival of Covenants and Representations . . . . . . 31
Section 9.9. Severability. . . . . . . . . . . . . . . . . . . . . 31
Section 9.10. Governing Law . . . . . . . . . . . . . . . . . . . . 31
Section 9.11. Captions. . . . . . . . . . . . . . . . . . . . . . . 31
Section 9.12. Additional Indebtedness . . . . . . . . . . . . . . . 31
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
-ii-
<PAGE> 4
ATTACHMENTS TO NOTE AGREEMENT:
Schedule I -- Names of Note Purchasers and Amounts of Commitments
Exhibit A -- Form of 7.68% Senior Note due October 1, 2004
Exhibit B -- Form of Guaranty Agreements
Exhibit C -- Representations and Warranties of the Company and its
Domestic Subsidiaries
Exhibit D -- Description of Special Counsel's Closing Opinion
Exhibit E -- Description of Closing Opinion of Counsel to the
Company and its Subsidiaries
Exhibit F -- Subordination Provisions Applicable to Convertible
Subordinated Notes
-iii-
<PAGE> 5
WALBRO CORPORATION
6242 GARFIELD STREET
CASS CITY, MICHIGAN 48726
NOTE AGREEMENT
Re: $45,000,000 7.68% Senior Notes
Due October 1, 2004
Dated as of
October 1, 1994
To the Purchasers named on Schedule I
to this Agreement
The undersigned, WALBRO CORPORATION, a Delaware corporation (the
"Company"), agrees with the Purchasers named on Schedule I to this Agreement
(the "Purchasers") as follows:
SECTION 1. DESCRIPTION OF NOTES AND COMMITMENT.
Section 1.1. Description of Notes. The Company will authorize
the issue and sale of $45,000,000 aggregate principal amount of its 7.68%
Senior Notes (the "Notes") to be dated the date of issue, to bear interest on
the unpaid amounts thereof from such date at the rate of 7.68% per annum,
payable quarterly on the first day of each January, April, July and October in
each year (commencing January 1, 1995) and at maturity and to bear interest on
overdue principal (including any overdue required or optional prepayment of
principal) and premium, if any, and (to the extent legally enforceable) on any
overdue installment of interest at the rate of 9.68% per annum after the date
due, whether by acceleration or otherwise, until paid, to be expressed to
mature on October 1, 2004, and to be substantially in the form attached hereto
as Exhibit A. Interest on the Notes shall be computed on the basis of a
360-day year of twelve 30-day months. The Notes are not subject to prepayment
or redemption at the option of the Company prior to their expressed maturity
dates except on the terms and conditions and in the amounts and with the
premium, if any, set forth in Section 2 of this Agreement. The term "Notes" as
used herein shall include each Note delivered pursuant to this Agreement.
Section 1.2. Commitment, Closing Date. Subject to the terms
and conditions hereof and on the basis of the representations and warranties
hereinafter set forth, the Company agrees to issue and sell to each Purchaser,
and such Purchaser agrees to purchase from the Company, Notes in the principal
amount set forth opposite such Purchaser's name on
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Walbro Corporation Note Agreement
Schedule I hereto at a price of 100% of the principal amount thereof on the
Closing Date hereafter mentioned.
Delivery of the Notes will be made at the offices of Chapman and
Cutler, 111 West Monroe Street, Chicago, Illinois 60603, against payment
therefor in Federal Reserve or other funds current and immediately available at
the principal office of National Bank of Detroit in the amount of the purchase
price at 10:00 A.M. Chicago time, on October 14, 1994 or such later date (not
later than October 31, 1994) as shall mutually be agreed upon by the Company
and the Purchasers (the "Closing Date"). The Notes delivered to each Purchaser
on the Closing Date will be delivered to such Purchaser in the form of a single
registered Note in the form attached hereto as Exhibit A for the full amount of
such Purchaser's purchase (unless different denominations are specified by such
Purchaser), registered in such Purchaser's name or in the name of such
Purchaser's nominee, all as such Purchaser may specify at any time prior to the
date fixed for delivery.
Section 1.3. Guaranty of Notes. Pursuant to those certain
separate Guaranty Agreements each dated as of October 1, 1994 (individually, a
"Guaranty Agreement" and collectively, the "Guaranty Agreements") from the
Domestic Subsidiaries to the Purchasers, each Domestic Subsidiary will
guarantee, so long as the Indebtedness under the Credit Agreement remains
outstanding and is guaranteed by such Domestic Subsidiary, (i) the due and
punctual payment of the principal of and interest and Make-Whole Amount, if
any, on the Notes from time to time outstanding, as and when such payments
become due and payable (including interest on overdue payments of principal,
Make-Whole Amount, if any, or interest at the rate set forth in the Notes) and
(ii) the prompt performance and compliance by the Company with each of its
other obligations under this Agreement. The Guaranty Agreements will be in the
form attached hereto as Exhibit B.
Section 1.4. Several Commitments. The obligations of the
Purchasers shall be several and not joint, and no Purchaser shall be liable or
responsible for the acts or defaults of any other Purchaser.
SECTION 2. PREPAYMENT OF NOTES.
Section 2.1. Required Prepayments. The Company agrees that on
October 1 in each year, commencing October 1, 1998 and ending October 1, 2003,
both inclusive, it will prepay and apply and there shall become due and payable
on the principal indebtedness evidenced by the Notes an amount equal to the
lesser of (i) $6,450,000 and (ii) the principal amount of the Notes then
outstanding. The entire remaining principal amount of the Notes shall become
due and payable on October 1, 2004. No premium shall be payable in connection
with any required prepayment made pursuant to this Section 2.1. For purposes
of this Section 2.1, any prepayment of less than all of the outstanding Notes
pursuant to Section 2.2 shall be deemed to be applied first, to the amount of
principal scheduled to remain unpaid on October 1, 2004, and then to the
remaining scheduled principal payments in inverse chronological order.
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Walbro Corporation Note Agreement
In the event of any prepayment of less than all of the Notes pursuant
to Section 2.3 or of any purchase or other acquisition by the Company of less
than all of the Notes, the amount of the payment required at maturity and each
prepayment required to be made pursuant to this Section 2.1 shall be reduced in
the proportion that the principal amount of such prepayment, purchase or other
acquisition bears to the unpaid principal amount of the Notes immediately prior
to such prepayment, purchase or other acquisition (after giving effect to any
prepayment made pursuant to this Section 2.1 on the date of such purchase or
other acquisition).
Section 2.2. Optional Prepayment with Premium. In addition to
the payments required by Section 2.1, upon compliance with Section 2.4 the
Company shall have the privilege, at any time and from time to time, of
prepaying the outstanding Notes, either in whole or in part (but if in part
then in a minimum principal amount of $100,000) by payment of the principal
amount of the Notes, or portion thereof to be prepaid, and accrued interest
thereon to the date of such prepayment, together with a premium equal to the
Make-Whole Amount, determined as of two business days prior to the date of such
prepayment pursuant to this Section 2.2.
Section 2.3. Prepayment upon Change of Control. In the event
the Company has knowledge of a Change of Control or an impending Change of
Control, the Company will give written notice (a "Control Change Notice") of
such fact to all Holders at least 60 days prior to any proposed Change of
Control Date; provided, however, that if the Company shall not then have
knowledge of such fact, such Control Change Notice shall be delivered promptly
upon receipt of such knowledge, but in no event later than three business days
after the Change of Control Date. The Control Change Notice shall (i) describe
the facts and circumstances of such Change of Control (including the Change of
Control Date or proposed Change of Control Date) in reasonable detail, (ii)
make reference to this Section 2.3 and the rights of the Holders to require the
Company to prepay their Notes on the terms and conditions provided for herein,
(iii) state that the Holder must make a declaration of its intent to have the
Notes held by it prepaid, and (iv) specify the date by which the Holder must
respond to such Control Change Notice pursuant to this Section 2.3 in order to
make such declaration.
Upon the receipt of such Control Change Notice or, if no Control
Change Notice is given, upon receipt of actual knowledge of a Change of
Control, the Holder of any Notes shall have the privilege, upon written notice
(the "Declaration Notice") to the Company, of declaring all Notes held by such
Holder serving such Declaration Notice to become due and payable and thereupon
such Notes shall become due and payable on such date (the "Control Change
Payment Date") as the Company shall specify in a written notice delivered to
such Holder, which notice shall be delivered by the Company to such Holder not
later than 20 days prior to the Control Change Payment Date. The Control
Change Payment Date shall be not later than 30 days after the Change of Control
Date, in the event that such Declaration Notice is served on or prior to the
Change of Control Date or 20 days after the date such Declaration Notice is
served, if such Declaration Notice is not served on or prior to the Change of
Control Date. The Company covenants and agrees to prepay in full on the
Control Change Payment Date all Notes held by such Holder serving such
Declaration Notice to the Company. Any Declaration Notice shall be served by a
Holder to the Company no later than (i) in the event a Control Change Notice
has in fact been given as hereinabove
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Walbro Corporation Note Agreement
required, 60 days after receipt of such Control Change Notice or (ii) if no
Control Change Notice has been given, 60 days after receipt of actual knowledge
of a Change of Control by such Holder. In the event that a Control Change
Notice is given and a Holder fails to provide a Declaration Notice within the
time period set forth above, the Notes held by such Holder shall not become due
and payable as a result of such Change of Control.
In the event that any Holder shall have declared all of the Notes held
thereby to become due and payable by delivery of a Declaration Notice pursuant
to this Section 2.3, then the Company shall promptly, but in any event within
15 days after the receipt of such Declaration Notice, deliver written notice of
such declaration to each other Holder and, notwithstanding the provisions of
the immediately preceding paragraph, the right of each such other Holder to
declare all of the Notes held thereby to become due and payable pursuant to
this Section 2.3 shall remain in effect until the later to occur of (i) 60 days
after receipt by such Holders of the Control Change Notice or actual knowledge
of such Change of Control and (ii) 30 days after receipt by such Holders of the
notice required to be delivered pursuant to this paragraph; provided, however,
that the provisions of this paragraph shall only apply with respect to notices
required to be delivered pursuant to this paragraph to the extent that such
notices relate to declarations made by Holders prior to the expiration of the
periods specified in the immediately preceding paragraph.
As used herein, the term "Change of Control" shall mean each and every
issue, sale or other disposition of shares of stock of the Company which
results in any Person or group of Persons acting in concert, other than the
Current Shareholder and Management Group, beneficially owning or controlling,
directly or indirectly, more than 50% (by number of votes) of the Voting Stock
of the Company.
As used herein, the term "Change of Control Date" shall mean any date
upon which a Change of Control shall occur.
As used herein, the term "Current Shareholder and Management Group"
shall mean (i) Lambert A. Althauer, Robert H. Walpole, Gary L. Vollmar,
Richard H. Whitehead III, Michael A. Shope and Daniel L. Hittler; (ii) the
spouses, lineal descendants and spouses of the lineal descendants of the
persons named in clause (i); and (iii) the estates or legal representatives of
the persons named in clause (i) and (ii).
All prepayments on the Notes pursuant to this Section 2.3 shall be
made by the payment of the aggregate principal amount remaining unpaid on such
Notes and accrued interest thereon to the date of such prepayment, but without
premium.
Section 2.4. Notice of Optional Prepayments. The Company will
give notice of any prepayment of the Notes pursuant to Section 2.2 to each
Holder thereof not less than 30 days nor more than 60 days before the date
fixed for such optional prepayment specifying (i) such date, (ii) the principal
amount of the Holder's Notes to be prepaid on such date, (iii) that a premium
may be payable, (iv) the date when such premium will be calculated, (v) the
estimated premium (including a reasonably detailed computation thereof), and
(vi) the accrued interest applicable to the prepayment. Notice of prepayment
having been so given,
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Walbro Corporation Note Agreement
the aggregate principal amount of the Notes specified in such notice, together
with accrued interest thereon and the premium, if any, payable with respect
thereto shall become due and payable on the prepayment date specified in said
notice. Not later than two business days prior to the prepayment date
specified in such notice, the Company shall provide each Holder written notice
of the premium, if any, payable in connection with such prepayment and, whether
or not any premium is payable, a reasonably detailed computation of the
Make-Whole Amount.
Section 2.5. Application of Prepayments. All partial
prepayments pursuant to Section Section 2.1 and 2.2 shall be applied on all
outstanding Notes ratably in accordance with the unpaid principal amounts
thereof.
Section 2.6. Direct Payment. Notwithstanding anything to the
contrary contained in this Agreement or the Notes, in the case of any Note
owned by any Holder that is a Purchaser or any other Institutional Holder which
has given written notice to the Company requesting that the provisions of this
Section 2.6 shall apply, the Company will punctually pay when due the principal
thereof, interest thereon and premium, if any, due with respect to said
principal, without any presentment thereof, directly to such Holder at its
address set forth herein or such other address as such Holder may from time to
time designate in writing to the Company or, if a bank account with a United
States bank is so designated for such Holder, the Company will make such
payments in immediately available funds to such bank account, marked for
attention as indicated, or in such other manner or to such other account in any
United States bank as such Holder may from time to time direct in writing.
SECTION 3. REPRESENTATIONS.
Section 3.1. Representations of the Company. The Company
represents and warrants that all representations and warranties set forth in
Exhibit B are true and correct as of the date hereof and are incorporated
herein by reference with the same force and effect as though herein set forth
in full.
Section 3.2. Representations of the Purchasers. Each Purchaser
represents, and in entering into this Agreement the Company understands, that
such Purchaser is acquiring the Notes for the purpose of investment and not
with a view to the distribution thereof, and that such Purchaser has no present
intention of selling, negotiating or otherwise disposing of the Notes; it being
understood, however, that the disposition of such Purchaser's property shall at
all times be and remain within its control. Each Purchaser further represents
that at least one of the following statements is an accurate representation as
to the source of funds to be used by such Purchaser to pay the purchase price
of the Notes purchased by it hereunder:
(a) if such Purchaser is an insurance company, no part of
such funds constitutes assets allocated to any separate account
maintained by such Purchaser in which any employee benefit plan (or
its related trust) has any interest; or
(b) if such Purchaser is an insurance company, to the
extent that any part of such funds constitutes assets allocated to any
separate account maintained by such
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Walbro Corporation Note Agreement
Purchaser in which any employee benefit plan (or its related trust)
has any interest, (i) such separate account is a "pooled separate
account" within the meaning of Prohibited Transaction Class Exemption
90-1, as amended, in which case such Purchaser has disclosed to the
Company the name of each employee benefit plan whose assets in such
separate account exceed 10% of the total assets or are expected to
exceed 10% of the total assets of such account as of the date of such
purchase (and for the purposes of this paragraph (b), all employee
benefit plans maintained by the same employer or employee organization
are deemed to be a single plan), or (ii) such separate account
contains only the assets of a specific employee benefit plan, complete
and accurate information as to the identity of which such Purchaser
has delivered to the Company; or
(c) if such Purchaser is other than an insurance company,
no part of such funds constitutes "plan assets".
As used in this Section 3.2, the terms "employee benefit plan" and "separate
account" shall have the respective meanings assigned to such terms in Section 3
of ERISA and the term "plan assets" shall have the meaning specified in
Department of Labor Regulation Section 2510.3-101.
SECTION 4. CLOSING CONDITIONS.
Section 4.1. Conditions. The obligation of each Purchaser to
purchase the Notes on the Closing Date shall be subject to the performance by
the Company of its agreements hereunder which by the terms hereof are to be
performed at or prior to the time of delivery of the Notes and to the following
further conditions precedent:
(a) Closing Certificate. Such Purchaser shall have
received a certificate dated the Closing Date, signed by the
President, a Vice President or Chief Financial Officer of the
Company and a President, a Vice President or Chief Financial
Officer of each Domestic Subsidiary, the truth and accuracy of
which shall be a condition to such Purchaser's obligation to
purchase the Notes proposed to be sold to such Purchaser and to
the effect that (i) the representations and warranties of the
Company and its Domestic Subsidiaries set forth in Exhibit C
hereto are true and correct on and with respect to the Closing
Date, (ii) the Company and each Domestic Subsidiary has performed
all of its obligations hereunder and under the Guaranty Agreements
which are to be performed on or prior to the Closing Date, (iii)
no Default or Event of Default has occurred and is continuing,
(iv) the execution of a Guaranty Agreement by each Domestic
Subsidiary will result in a financial benefit to such Domestic
Subsidiary and (v) the related Guaranty Agreement has been
executed by such Domestic Subsidiary in good faith.
(b) Guaranty Agreements. A Guaranty Agreement shall have
been duly executed and delivered by each Domestic Subsidiary.
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Walbro Corporation Note Agreement
(c) Legal Opinions. Such Purchaser shall have received
from Chapman and Cutler, who are acting as special counsel to the
Purchasers in this transaction, and from Katten Muchin & Zavis,
counsel for the Company and its Subsidiaries, their respective
opinions dated the Closing Date, in form and substance
satisfactory to such Purchaser, and covering the matters set forth
in Exhibits D and E, respectively, hereto.
(d) Related Transactions. The Company shall have
consummated the sale of the entire principal amount of the Notes
scheduled to be sold on the Closing Date pursuant to this
Agreement.
(e) Satisfactory Proceedings. All proceedings taken in
connection with the transactions contemplated by this Agreement,
and all documents necessary to the consummation thereof, shall be
satisfactory in form and substance to such Purchaser and such
Purchaser's special counsel, and such Purchaser shall have
received a copy (executed or certified as may be appropriate) of
all legal documents or proceedings taken in connection with the
consummation of said transactions.
Section 4.2. Waiver of Conditions. If on the Closing Date the
Company fails to tender to any Purchaser the Notes to be issued to any
Purchaser on such date or if the conditions specified in Section 4.1 have not
been fulfilled or waived by such Purchaser, such Purchaser may thereupon elect
to be relieved of all further obligations under this Agreement. Without
limiting the foregoing, if the conditions specified in Section 4.1 have not
been fulfilled, such Purchaser may waive compliance by the Company with any
such condition to such extent as such Purchaser may in its sole discretion
determine. Nothing in this Section 4.2 shall operate to relieve the Company of
any of its obligations hereunder or to waive any Purchaser's rights against the
Company.
SECTION 5. COMPANY COVENANTS.
From and after the date of this Agreement and continuing so long as
any amount remains unpaid on any Note:
Section 5.1. Corporate Existence, Etc. The Company will
preserve and keep in full force and effect, and will cause each Subsidiary to
preserve and keep in full force and effect, its corporate existence and all
licenses and permits necessary to the proper conduct of its business; provided,
however, that the foregoing shall not prevent any transaction permitted by
Section 5.9.
Section 5.2. Insurance. The Company will maintain, and will
cause each Subsidiary to maintain, insurance coverage by financially sound and
reputable insurers which, except with respect to aviation insurance, are
accorded a rating by A.M. Best Company, Inc. ("Best") of A:XII or higher at
the time of issuance of any such policy and in such forms and amounts and
against such risks as are customary for corporations of established reputation
engaged in the same or a similar business and owning and operating similar
properties; provided, however, that notwithstanding the foregoing, the Company
may maintain, and
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Walbro Corporation Note Agreement
cause each of its Subsidiaries to maintain, insurance coverage by American
National Fire Insurance Company ("American National"), so long as American
National maintains a rating by Best of A:XI or higher; provided, further
however, that if during the term of any such insurance policy, the rating
accorded the insurer shall be less than A:XII (or A:XI in the case of American
National), the Company, on the date of renewal of any such policy (or, if such
change in rating shall occur within 90 days prior to such renewal date, within
90 days of the date of such change in rating), will obtain such insurance
policy from an insurer accorded a rating by Best of A:XII or higher.
Section 5.3. Taxes, Claims for Labor and Materials, Compliance
with Laws. The Company will promptly pay and discharge, and will cause each
Subsidiary promptly to pay and discharge, all lawful taxes, assessments and
governmental charges or levies imposed upon the Company or such Subsidiary,
respectively, or upon or in respect of all or any part of the property or
business of the Company or such Subsidiary, all trade accounts payable in
accordance with usual and customary business terms, and all claims for work,
labor or materials, which if unpaid might become a Lien upon any property of
the Company or such Subsidiary; provided, however, that the Company or such
Subsidiary shall not be required to pay any such tax, assessment, charge, levy,
account payable or claim if (i) the validity, applicability or amount thereof
is being contested in good faith by appropriate actions or proceedings which
will prevent the forfeiture or sale of any property of the Company or such
Subsidiary or any material interference with the use thereof by the Company or
such Subsidiary, and (ii) the Company or such Subsidiary shall set aside on its
books, reserves deemed by it to be adequate with respect thereto. The Company
will promptly comply and will cause each Subsidiary to comply with all laws,
ordinances or governmental rules and regulations to which it is subject
including, without limitation, the Occupational Safety and Health Act of 1970,
as amended, ERISA and all laws, ordinances, governmental rules and regulations
relating to environmental protection in all applicable jurisdictions, the
violation of which could materially and adversely affect the properties,
business, prospects, profits or condition of the Company and its Subsidiaries
or would result in any Lien not permitted under Section 5.8.
Section 5.4. Maintenance, Etc. The Company will maintain,
preserve and keep, and will cause each Subsidiary to maintain, preserve and
keep, its properties which are used or useful in the conduct of its business
(whether owned in fee or a leasehold interest) in good repair and working order
and from time to time will make all necessary repairs, replacements, renewals
and additions so that at all times the efficiency thereof shall be maintained.
Section 5.5. Nature of Business. Neither the Company nor any
Subsidiary will engage in any business if, as a result, the general nature of
the business, taken on a consolidated basis, which would then be engaged in by
the Company and its Subsidiaries would be substantially changed from the
general nature of the business engaged in by the Company and its Subsidiaries
on the date of this Agreement.
Section 5.6. Consolidated Adjusted Net Worth. The Company will
at all times during the following periods keep and maintain Consolidated
Adjusted Net Worth at an
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Walbro Corporation Note Agreement
amount not less than (i) during its fiscal year ending December 31, 1994,
$85,000,000, and (ii) during each fiscal year thereafter, an amount equal to
the sum of the amount that was required to be maintained during the previous
fiscal year plus an amount equal to 25% of Consolidated Net Income for such
previous fiscal year (but without deduction in the event of a deficit in such
Consolidated Net Income).
Section 5.7. Limitations on Funded Debt and Priority
Obligations. (a) The Company will not, and will not permit any Subsidiary to,
create, assume or incur or in any manner be or become liable in respect of any
Funded Debt or other Priority Obligations, except:
(1) Funded Debt evidenced by the Notes;
(2) Funded Debt of the Company and its Subsidiaries
outstanding as of the Closing Date and reflected on Annex B to
Exhibit C hereto;
(3) additional Funded Debt of the Company and its
Subsidiaries and other Priority Obligations, provided that at the
time of issuance thereof and after giving effect thereto and to
the application of the proceeds thereof:
(i) Consolidated Adjusted Funded Debt shall not
exceed 65% of Consolidated Total Capitalization, and
(ii) in the case of the issuance of any Priority
Obligations, the aggregate amount of all Priority
Obligations (except Funded Debt of any Subsidiary
resulting from Guaranties of senior Funded Debt if
such Subsidiary guaranties the Notes equally and
ratably) shall not exceed 20% of Consolidated
Adjusted Net Worth;
(4) Funded Debt of a Subsidiary to the Company or to a
Wholly-owned Subsidiary and Priority Obligations of a Subsidiary
held by the Company or a Wholly-owned Subsidiary; and
(5) any extension, renewal or refunding of outstanding
Funded Debt, without any increase in the principal amount thereof.
(b) Any corporation which becomes a Subsidiary after the date
hereof shall for all purposes of this Section 5.7 be deemed to have created,
assumed or incurred at the time it becomes a Subsidiary all Funded Debt and
Priority Obligations of such corporation existing immediately after it becomes
a Subsidiary.
Section 5.8. Limitation on Liens. The Company will not, and
will not permit any Subsidiary to, create or incur, or suffer to be incurred or
to exist, any Lien on its or their property or assets, whether now owned or
hereafter acquired, or upon any income or profits therefrom, or transfer any
property for the purpose of subjecting the same to the payment of obligations
in priority to the payment of its or their general creditors (other than
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in the ordinary course of business), or acquire or agree to acquire, or permit
any Subsidiary to acquire, any property or assets upon conditional sales
agreements or other title retention devices, except:
(a) Liens for property taxes and assessments or governmental
charges or levies and Liens securing claims or demands of mechanics and
materialmen, provided payment thereof is not at the time required by
Section 5.3;
(b) Liens of or resulting from any order, judgment or award, the
time for the appeal or petition for rehearing of which shall not have
expired, or in respect of which the Company or a Subsidiary shall at any
time in good faith be prosecuting an appeal or proceeding for a review and
in respect of which a stay of execution pending such appeal or proceeding
for review shall have been secured;
(c) Liens incidental to the conduct of business or the ownership
of properties and assets (including Liens in connection with worker's
compensation, unemployment insurance and other like laws, warehousemen's
and attorneys' liens and statutory landlords' liens) and Liens to secure
the performance of bids, tenders or trade contracts, or to secure statutory
obligations, surety or appeal bonds or other Liens of like general nature
incurred in the ordinary course of business and not in connection with the
borrowing of money; provided in each case, the obligation secured is not
overdue or, if overdue, is being contested in good faith by appropriate
actions or proceedings;
(d) minor survey exceptions or minor encumbrances, easements or
reservations, or rights of others for rights-of-way, utilities and other
similar purposes, or zoning or other restrictions as to the use of real
properties, which are necessary for the conduct of the activities of the
Company and its Subsidiaries or which customarily exist on properties of
corporations engaged in similar activities and similarly situated and
which do not in any event materially impair their use in the operation of
the business of the Company and its Subsidiaries;
(e) Liens securing Indebtedness of a Subsidiary to the Company or
to another Wholly-owned Subsidiary;
(f) Liens existing as of the Closing Date and reflected on Annex B
to Exhibit C hereto and extensions, renewals and replacements of such
Liens, provided that in connection with any such extension, renewal or
replacement the amount of the Indebtedness secured thereby shall not be
increased and such Liens shall not be extended to any other property of
the Company or any Subsidiary not previously subject thereto;
(g) Liens incurred after the Closing Date given to secure the
payment of the purchase price or cost of construction incurred in
connection and contemporaneously with (or within 120 days thereafter) the
acquisition or construction of fixed assets useful and intended to be used
in carrying on the business of the Company or a
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Walbro Corporation Note Agreement
Subsidiary, including Liens existing on such fixed assets at the time
of acquisition thereof or at the time of acquisition by the Company or a
Subsidiary of any business entity then owning such fixed assets, whether
or not such existing Liens were given to secure the payment of the
purchase price of the fixed assets to which they attach or the Indebtedness
secured thereby is assumed by the Company or any Subsidiary so long as such
Liens were not incurred, extended or renewed in contemplation of such
acquisition, provided that (i) the Lien shall attach solely to the fixed
assets acquired, purchased or constructed, (ii) at the time of imposition
of such Lien, the aggregate amount remaining unpaid on all Indebtedness
secured by Liens on such fixed assets whether or not assumed by the Company
or a Subsidiary shall not exceed an amount equal to the lesser of the total
purchase price or fair market value at the time of imposition of such Lien
(as determined in good faith by the Board of Directors of the Company), and
(iii) all such Indebtedness shall have been incurred within the applicable
limitations provided in Section 5.7;
(h) Liens on fixed assets in addition to those permitted by the
foregoing paragraphs (a) through (g) of this Section 5.8, provided that
(i) such Liens shall secure only Consolidated Adjusted Funded Debt
incurred within the limitations of Section 5.7(A)(3) pursuant to an
agreement entered into substantially contemporaneously with the imposition
of such Lien and not any pre-existing Indebtedness, any extension, renewal
or replacement of pre-existing Indebtedness nor any Indebtedness (whether
or not pre-existing Indebtedness) under any pre-existing agreement or
under any extension, renewal or replacement of such an agreement, and (ii)
after giving effect to the incurrence of such Indebtedness and to the
application of the proceeds thereof, Priority Obligations shall not exceed
20% of Consolidated Adjusted Net Worth; and
(i) Liens in addition to those permitted by the foregoing
paragraphs (a) through (h) of this Section 5.8 securing other Indebtedness,
provided that (i) the Notes shall be equally and ratably secured by such
Liens with such other Indebtedness under documentation which has the prior
written approval of the Holder or Holders of the Notes, and (ii) the
Holder or Holders of the Notes shall have received the favorable written
opinion of independent counsel designated by such Holder or Holders to
the effect that such documentation is the legal, valid and binding
obligation of the grantor or grantors of such Liens, enforceable against
each such grantor in accordance with its terms and constitutes a valid and
perfected Lien for the benefit of the Notes equally and ratably with
such other Indebtedness.
Section 5.9. Mergers, Etc;. The Company will not consolidate
with or be a party to a merger with any other corporation, except that the
Company may consolidate or merge with any other corporation if (i) the Company
shall be the surviving or continuing corporation, (ii) at the time of such
consolidation or merger and after giving effect thereto no Default or Event of
Default shall have occurred and be continuing, and (iii) after giving effect to
such consolidation or merger the Company would be permitted to incur at least
$1.00 of additional Funded Debt under the provisions of Section 5.7(A)(3)(I).
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Walbro Corporation Note Agreement
Section 5.10 Sales of Assets. The Company will not, and will
not permit any Subsidiary to, engage in any Asset Disposition involving any
substantial part of the assets of the Company and its Subsidiaries, except that
any Subsidiary may sell, lease or otherwise dispose of all or any substantial
part of its assets to the Company or any Wholly-owned Subsidiary. As used in
this Section 5.10:
(a) "Asset Disposition" shall mean and include (i) a
sale, lease or other disposition of assets (other than in the
ordinary course of business) by the Company or any Subsidiary,
(ii) the issuance or sale by any Subsidiary of any shares of stock
of any class (including as "stock" for the purposes of this
Section 5.10, any warrants, rights or options to purchase or
otherwise acquire stock or other Securities exchangeable for or
convertible into stock) of such Subsidiary to any Person other
than the Company or a Wholly-owned Subsidiary (except for the
purpose of qualifying directors, or except in satisfaction of the
validly pre-existing preemptive rights of minority shareholders in
connection with the simultaneous issuance of stock to the Company
and its Subsidiaries whereby the Company and its Subsidiaries
maintain their same proportionate interest in such Subsidiary),
and (iii) the sale, transfer or other disposition by the Company
of any shares of stock of any Subsidiary (except to qualify
directors) and the sale, transfer or other disposition by any
Subsidiary of any shares of stock of any other Subsidiary.
(b) An Asset Disposition shall be deemed to involve a
"substantial part" of the assets of the Company and its
Subsidiaries (i) if the book value of the assets subject to such
Asset Disposition, when added to the book value of all other
assets subject to other Asset Dispositions during the same fiscal
year exceeds 10% of Consolidated Total Assets, determined as of
the end of the immediately preceding fiscal year, or (ii) if the
book value of the assets subject to such Asset Disposition, when
added to the book value of all other assets subject to other Asset
Dispositions during the entire period beginning April 1, 1994 and
ending with the date of such Asset Disposition exceeds 25% of
Consolidated Total Assets, determined as of the end of the fiscal
year immediately preceding such Asset Disposition; provided,
however, that in any computation of "substantial part" there
shall be excluded (x) the sale or other disposition of Walbro
Engine Management Corporation, a Delaware corporation, or the
assets thereof, and (y) any Asset Disposition, to the extent that
the proceeds thereof are applied within one year after the date of
such Asset Disposition to either (1) the voluntary prepayment of
the Notes and other Funded Debt of the Company ranking on a parity
with the Notes, on a pro rata basis, or (2) the purchase of other
property of a similar nature in each such case, to the property
subject to such Asset Disposition.
Section 5.11. Guaranties. The Company will not, and will not
permit any Subsidiary to, become or be liable in respect of any Guaranty
except:
(a) Guaranties by the Company which are limited in amount
to a stated maximum dollar exposure or which constitute Guaranties
of obligations incurred by any Subsidiary in compliance with the
provisions of this Agreement, and
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Walbro Corporation Note Agreement
(b) Guaranties by one or more Subsidiaries of Indebtedness
of the Company incurred within the limitations of Section 5.7(A)(3),
provided that, as a condition precedent to entering into any such
Guaranty, (i) each such Subsidiary shall have guaranteed the Notes
equally and ratably with such other Indebtedness of the Company under
a form of Guaranty which has the prior written approval of the Holder
or Holders of the Notes, and (ii) the Holder or Holders of the Notes
shall have received the favorable written opinion of independent
counsel designated by such Holder or Holders to the effect that such
Guaranty of the Notes is the legal, valid and binding obligation of
each such Subsidiary, enforceable against each such Subsidiary in
accordance with its terms.
Section 5.12. Repurchase of Notes. Neither the Company nor any
Subsidiary or Affiliate, directly or indirectly, may repurchase or make any
offer to repurchase any Notes unless an offer has been made to repurchase
Notes, pro rata, from all Holders at the same time and upon the same terms. In
case the Company repurchases or otherwise acquires any Notes, such Notes shall
immediately thereafter be canceled and no Notes shall be issued in substitution
therefor. Without limiting the foregoing, upon the repurchase or other
acquisition of any Notes by the Company, any Subsidiary or any Affiliate (or
upon the agreement of the Company, any Subsidiary or any Affiliate to purchase
or otherwise acquire any Notes), such Notes shall no longer be outstanding for
purposes of any section of this Agreement relating to the taking by the Holders
of any actions with respect hereto, including, without limitation, Section 6.3,
Section 6.4 and Section 7.1.
Section 5.13. Transactions with Affiliates. The Company will
not, and will not permit any Subsidiary to, enter into or be a party to any
transaction or arrangement with any Affiliate (including, without limitation,
the purchase from, sale to or exchange of property with, or the rendering of
any service by or for, any Affiliate), except in the ordinary course of and
pursuant to the reasonable requirements of the Company's or such Subsidiary's
business and upon fair and reasonable terms no less favorable to the Company or
such Subsidiary than would obtain in a comparable arm's-length transaction with
a Person other than an Affiliate.
Section 5.14. Termination of Pension Plans. The Company will
not and will not permit any Subsidiary to withdraw from any Multiemployer Plan
or permit any employee benefit plan maintained by it to be terminated if such
withdrawal or termination could result in withdrawal liability (as described in
Part 1 of Subtitle E of Title IV of ERISA) or the imposition of a Lien on any
property of the Company or any Subsidiary pursuant to Section 4068 of ERISA.
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Walbro Corporation Note Agreement
Section 5.15. Reports and Rights of Inspection. The Company
will keep, and will cause each Subsidiary to keep, proper books of record and
account in which full and correct entries will be made of all dealings or
transactions of, or in relation to, the business and affairs of the Company or
such Subsidiary, in accordance with GAAP consistently applied (except for
changes disclosed in the financial statements furnished to the Holders pursuant
to this Section 5.15 and concurred in by the independent public accountants
referred to in Section 5.15(B) hereof), and will furnish to each Institutional
Holder and, with respect to the annual statements described in clause (b)
below, the National Association of Insurance Commissioners (in duplicate if so
specified below or otherwise requested):
(a) Quarterly Statements. As soon as available and in
any event within 45 days after the end of each quarterly fiscal
period (except the last) of each fiscal year, copies of:
(1) consolidated balance sheets of the Company
and its Subsidiaries as of the close of such quarterly fiscal
period, setting forth in comparative form the consolidated
figures for the fiscal year then most recently ended,
(2) consolidated statements of income of the
Company and its Subsidiaries for such quarterly fiscal period
and for the portion of the fiscal year ending with such
quarterly fiscal period, in each case setting forth in
comparative form the consolidated figures for the
corresponding periods of the preceding fiscal year, and
(3) consolidated statements of cash flows of the
Company and its Subsidiaries for the portion of the fiscal
year ending with such quarterly fiscal period, setting forth
in comparative form the consolidated figures for the
corresponding period of the preceding fiscal year,
all in reasonable detail and certified as complete and correct by an
authorized financial officer of the Company;
(b) Annual Statements. As soon as available and in any event
within 90 days after the close of each fiscal year of the Company, copies
of:
(1) consolidated and, to the extent prepared by the
Company, consolidating balance sheets of the Company and its
Subsidiaries as of the close of such fiscal year, and
(2) consolidated and, to the extent prepared by the
Company, consolidating statements of income and stockholders'
equity and cash flows of the Company and its Subsidiaries for such
fiscal year,
in each case setting forth in comparative form the consolidated figures for the
preceding fiscal year, all in reasonable detail and accompanied by a report
thereon of a firm of independent public accountants of recognized national
standing selected by
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Walbro Corporation Note Agreement
the Company and reasonably satisfactory to the Holders and, containing an
opinion, without qualifications, to the effect that the consolidated financial
statements present fairly, in all material respects, the consolidated financial
position of the Company and its Subsidiaries as of the end of the fiscal year
being reported on and the consolidated results of the operations and cash flows
for said year in conformity with GAAP and that the examination of such
accountants in connection with such financial statements has been conducted in
accordance with generally accepted auditing standards and included such tests
of the accounting records and such other auditing procedures as said
accountants deemed necessary in the circumstances;
(c) Audit Reports. Promptly upon receipt thereof, one copy of
each interim or special audit made by independent accountants of the books of
the Company or any Subsidiary and any management letter received from such
accountants;
(d) SEC and Other Reports. Promptly upon their becoming
available, one copy of each financial statement, report, notice or proxy
statement sent by the Company to stockholders generally and of each regular or
periodic report, and any registration statement or prospectus filed by the
Company or any Subsidiary with any securities exchange or the Securities and
Exchange Commission or any successor agency, and copies of any orders in any
proceedings to which the Company or any of its Subsidiaries is a party, issued
by any governmental agency, Federal or state, having jurisdiction over the
Company or any of its Subsidiaries;
(e) ERISA Reports. Promptly upon the occurrence thereof, written
notice of (i) a Reportable Event with respect to any Plan; (ii) the institution
of any steps by the Company, any ERISA Affiliate, the PBGC or any other person
to terminate any Plan; (iii) the institution of any steps by the Company or any
ERISA Affiliate to withdraw from any Plan; (iv) a non-exempt "prohibited
transaction" within the meaning of Section 406 of ERISA in connection with any
Plan; (v) any material increase in the contingent liability of the Company or
any Subsidiary with respect to any post-retirement welfare liability; or (vi)
the taking of any action by, or the threatening of the taking of any action by,
the Internal Revenue Service, the Department of Labor or the PBGC with respect
to any of the foregoing;
(f) Officer's Certificates. Within the periods provided in
paragraphs (a) and (b) above, a certificate of an authorized financial officer
of the Company stating that such officer has reviewed the provisions of this
Agreement and setting forth: (i) the information and computations (in
sufficient detail) required in order to establish whether the Company was in
compliance with the requirements of Section 5.6 through Section 5.14 at the end
of the period covered by the financial statements then being furnished, and
(ii) whether there existed as of the date of such financial statements and
whether, to the best of such officer's knowledge, there exists on the date of
the certificate or existed at any time during the period covered by such
financial statements any Default or Event of Default and, if any such condition
or event exists on the date of the certificate, specifying the nature and
period of existence thereof and the action the Company is taking and proposes
to take with respect thereto;
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Walbro Corporation Note Agreement
(g) Accountant's Certificates. Within the period provided
in paragraph (b) above, a certificate of the accountants who render
an opinion with respect to such financial statements, stating that
they have reviewed this Agreement and stating further whether, in
making their audit, such accountants have become aware of any Default
or Event of Default under any of the terms or provisions of this
Agreement insofar as any such terms or provisions pertain to or
involve accounting matters or determinations, and if any such
condition or event then exists, specifying the nature and period of
existence thereof;
(h) Requested Information. With reasonable promptness,
such other data and information as such Institutional Holder may
reasonably request.
Without limiting the foregoing, the Company will permit each Institutional
Holder (or such Persons as such Institutional Holder may designate), to visit
and inspect, under the Company's guidance, any of the properties of the Company
or any Subsidiary, to examine all of their books of account, records, reports
and other papers, to make copies and extracts therefrom and to discuss their
respective affairs, finances and accounts with their respective officers,
employees, and independent public accountants (and by this provision the
Company authorizes said accountants to discuss with any Institutional Holder
the finances and affairs of the Company and its Subsidiaries) all at such
reasonable times and as often as may be reasonably requested. The Company
shall not be required to pay or reimburse any Holder for expenses which such
Holder may incur in connection with any such visitation or inspection, except
that if such visitation or inspection is made during any period when a Default
or an Event of Default shall have occurred and be continuing, the Company
agrees to reimburse such Holder for all such expenses promptly upon demand.
Section 5.16. New Domestic Subsidiaries. So long as the
Indebtedness of the Company under the Credit Agreement remains outstanding and
is guaranteed by the Domestic Subsidiaries, the Company shall cause any entity
which becomes a Domestic Subsidiary from and after the Closing Date to execute
and deliver a Guaranty Agreement in the form attached as Exhibit B hereto,
together with a certificate dated the date of execution and delivery of such
Guaranty Agreement signed by the President, a Vice President or Chief Financial
Officer of such Domestic Subsidiary to the effect that such Guaranty Agreement
has been duly authorized, executed and delivered by such Domestic Subsidiary
and such Guaranty Agreement constitutes the legal, valid and binding
obligation, contract and agreement of such Domestic Subsidiary enforceable in
accordance with its terms.
SECTION 6. EVENTS OF DEFAULT AND REMEDIES THEREFOR.
Section 6.1. Events of Default. Any one or more of the
following shall constitute an "Event of Default" as such term is used herein:
(a) Default shall occur in the payment of interest on any
Note when the same shall have become due and such default shall
continue for more than five business days; or
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Walbro Corporation Note Agreement
(b) Default shall occur in the making of any required prepayment
on any of the Notes as provided in Section 2.1; or
(c) Default shall occur in the making of any other payment of the
principal of any Note or premium, if any, thereon at the expressed or any
accelerated maturity date or at any date fixed for prepayment; or
(d) Default shall be made in the payment when due (whether by
lapse of time, by declaration, by call for redemption or otherwise) of the
principal of or interest on any Funded Debt or Current Debt in an aggregate
principal amount of $5,000,000 or more (other than the Notes) of the Company or
any Subsidiary and such default shall continue beyond the period of grace, if
any, allowed with respect thereto; or
(e) Default or any event shall occur under any indenture,
agreement or other instrument under which any Funded Debt or Current Debt in an
aggregate principal amount of $5,000,000 or more of the Company or any
Subsidiary may be issued and such default or event shall result in the
acceleration of the maturity of any Funded Debt or Current Debt of the Company
or any Subsidiary outstanding thereunder; or
(f) Default or any event shall occur under the Credit Agreement
and such default or event shall continue beyond the period of grace, if any,
allowed with respect thereto; or
(g) Default shall occur in the observance or performance of the
covenant contained in Section 6.2; or
(h) Default shall occur in the observance or performance of any
other provision of this Agreement which is not remedied within 30 business days
after the earlier of (i) the day on which the Company first obtains knowledge
of such default, or (ii) the day on which written notice thereof is given to
the Company by any Holder; or
(i) Any representation or warranty made by the Company herein, or
made by the Company in any statement or certificate furnished by the Company in
connection with the consummation of the issuance and delivery of the Notes or
furnished by the Company pursuant hereto, is untrue in any material respect as
of the date of the issuance or making thereof; or
(j) Any representation or warranty made by any Domestic Subsidiary
in any Guaranty Agreement, or made by any Domestic Subsidiary in any statement
or certificate furnished by any Domestic Subsidiary in connection with the
consummation of the issuance and delivery of the Notes or furnished by any
Domestic Subsidiary pursuant hereto or to any Guaranty Agreement, is untrue in
any material respect as of the date of the issuance or making thereof; or
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Walbro Corporation Note Agreement
(k) The obligations of any Domestic Subsidiary contained
in any Guaranty Agreement shall cease to be in full force and effect
for any reason whatsoever, including, without limitation, the
determination by any governmental body or court that any Guaranty
Agreement is invalid, void or unenforceable or any Domestic Subsidiary
shall contest or deny in writing the validity or enforceability of any
Guaranty Agreement; or
(l) Final judgment or judgments for the payment of money
aggregating in excess of $3,000,000 (excluding amounts covered by
insurance) is or are outstanding against the Company or any Subsidiary
or against any property or assets of either and any one of such
judgments has remained unpaid, unvacated, unbonded or unstayed by
appeal or otherwise for a period of the lesser of (i) 60 days from the
date of its entry and (ii) the period of time as is permitted for
filing a notice of appeal in the applicable court; or
(m) A custodian, liquidator, trustee or receiver is
appointed for the Company or any Subsidiary or for the major part of
the property of either and is not discharged within 30 days after such
appointment; or
(n) The Company or any Subsidiary becomes insolvent or
bankrupt, is generally not paying its debts as they become due or
makes an assignment for the benefit of creditors, or the Company or
any Subsidiary applies for or consents to the appointment of a
custodian, liquidator, trustee or receiver for the Company or such
Subsidiary or for the major part of the property of either; or
(o) Bankruptcy, reorganization, arrangement or insolvency
proceedings, or other proceedings for relief under any bankruptcy or
similar law or laws for the relief of debtors, are instituted by or
against the Company or any Subsidiary and, if instituted against the
Company or any Subsidiary, are consented to or are not dismissed within
60 days after such institution.
Section 6.2. Notice to Holders. When any Event of Default
described in the foregoing Section 6.1 has occurred, or if any Holder or the
holder of any other evidence of Funded Debt or Current Debt of the Company
gives any notice or takes any other action with respect to a claimed default,
the Company agrees to give notice within three business days of such event to
all Holders.
Section 6.3. Acceleration of Maturities. When any Event of
Default described in paragraph (a), (b) or (c) of Section 6.1 has happened and
is continuing, any Holder may, by notice to the Company, declare the entire
principal and all interest accrued on all Notes held by such Holder to be, and
all Notes held by such Holder shall thereupon become, forthwith due and
payable, without any presentment, demand, protest or other notice of any kind,
all of which are hereby expressly waived. When any Event of Default described
in paragraphs (d) through (m), inclusive, of said Section 6.1 has happened and
is continuing, any Holder or Holders holding 25% or more of the principal
amount of Notes at the time outstanding may, by notice to the Company, declare
the entire principal and all interest
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Walbro Corporation Note Agreement
accrued on all Notes to be, and all Notes shall thereupon become, forthwith due
and payable, without any presentment, demand, protest or other notice of any
kind, all of which are hereby expressly waived. When any Event of Default
described in paragraph (n) or (o) of Section 6.1 has occurred, then all
outstanding Notes shall immediately become due and payable without presentment,
demand or notice of any kind. Upon the Notes becoming due and payable as a
result of any Event of Default as aforesaid, the Company will forthwith pay to
the Holders, the entire principal and interest accrued on the Notes and, to the
extent not prohibited by applicable law, an amount as liquidated damages for
the loss of the bargain evidenced hereby (and not as a penalty) equal to the
Make-Whole Amount, determined as of the date on which the Notes shall so become
due and payable. No course of dealing on the part of the Holder or Holders nor
any delay or failure on the part of any Holder to exercise any right shall
operate as a waiver of such right or otherwise prejudice such Holder's rights,
powers and remedies. The Company further agrees, to the extent permitted by
law, to pay to the Holder or Holders all costs and expenses incurred by them in
the collection of any Notes upon any default hereunder or thereon, including
reasonable compensation to such Holder's or Holders' attorneys for all services
rendered in connection therewith.
Section 6.4. Rescission of Acceleration. The provisions of
Section 6.3 are subject to the condition that if the principal of and accrued
interest on all or any outstanding Notes have been declared immediately due and
payable by reason of the occurrence of any Event of Default described in
paragraphs (a) through (m), inclusive, of Section 6.1, the Holders holding
66-2/3% in aggregate principal amount of the Notes then outstanding may, by
written instrument filed with the Company, rescind and annul such declaration
and the consequences thereof, provided that at the time such declaration is
annulled and rescinded:
(a) no judgment or decree has been entered for the
payment of any monies due pursuant to the Notes or this Agreement;
(b) all arrears of interest upon all the Notes and all
other sums payable under the Notes and under this Agreement
(except any principal, interest or premium on the Notes which has
become due and payable solely by reason of such declaration under
Section 6.3) shall have been duly paid; and
(c) each and every other Default and Event of Default
shall have been made good, cured or waived pursuant to Section 7.1;
and provided further, that no such rescission and annulment shall extend to or
affect any subsequent Default or Event of Default or impair any right
consequent thereto.
SECTION 7. AMENDMENTS, WAIVERS AND CONSENTS.
Section 7.1. Consent Required. Any term, covenant, agreement
or condition of this Agreement may, with the consent of the Company, be amended
or compliance therewith may be waived (either generally or in a particular
instance and either retroactively or prospectively), if the Company shall have
obtained the consent in writing of the Holders holding at least 66-2/3% in
aggregate principal amount of outstanding Notes; provided,
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Walbro Corporation Note Agreement
however, that without the written consent of all of the Holders, no such
amendment or waiver shall be effective (i) which will change the time of
payment (including any prepayment required by Section 2.1) of the principal of
or the interest on any Note or change the principal amount thereof or change
the rate of interest thereon, or (ii) which will change any of the provisions
with respect to optional prepayments, or (iii) which will change the percentage
of Holders required to consent to any such amendment or waiver of any of the
provisions of this Section 7 or Section 6.
Section 7.2. Solicitation of Holders. So long as there are any
Notes outstanding, the Company will not solicit, request or negotiate for or
with respect to any proposed waiver or amendment of any of the provisions of
this Agreement or the Notes unless each Holder (irrespective of the amount of
Notes then owned by it) shall be informed thereof by the Company and shall be
afforded the opportunity of considering the same and shall be supplied by the
Company with sufficient information to enable it to make an informed decision
with respect thereto. The Company will not, directly or indirectly, pay or
cause to be paid any remuneration, whether by way of supplemental or additional
interest, fee or otherwise, to any Holder as consideration for or as an
inducement to entering into by any Holder of any waiver or amendment of any of
the terms and provisions of this Agreement or the Notes unless such
remuneration is concurrently offered, on the same terms, ratably to all
Holders.
Section 7.3. Effect of Amendment or Waiver. Any such amendment
or waiver shall apply equally to all of the Holders and shall be binding upon
them, upon each future Holder and upon the Company, whether or not any Note
shall have been marked to indicate such amendment or waiver. No such amendment
or waiver shall extend to or affect any obligation not expressly amended or
waived or impair any right consequent thereon.
SECTION 8. INTERPRETATION OF AGREEMENT; DEFINITIONS.
Section 8.1. Definitions. Unless the context otherwise
requires, the terms hereinafter set forth when used herein shall have the
following meanings and the following definitions shall be equally applicable to
both the singular and plural forms of any of the terms herein defined:
"Affiliate" shall mean any Person (other than a Subsidiary) (i) which
directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, the Company, (ii) which
beneficially owns or holds 5% or more of any class of the Voting Stock of the
Company or (iii) 5% or more of the Voting Stock (or in the case of a Person
which is not a corporation, 5% or more of the equity interest) of which is
beneficially owned or held by the Company or a Subsidiary. The term "control"
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of a Person, whether through the
ownership of Voting Stock, by contract or otherwise.
"Agreement" shall mean this Note Agreement.
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Walbro Corporation Note Agreement
"Capitalized Lease" shall mean any lease the obligation for Rentals
with respect to which is required to be capitalized on a consolidated balance
sheet of the lessee and its subsidiaries in accordance with GAAP.
"Capitalized Rentals" of any Person shall mean as of the date of any
determination thereof the amount at which the aggregate Rentals due and to
become due under all Capitalized Leases under which such Person is a lessee
would be reflected as a liability on a consolidated balance sheet of such
Person.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Company" shall mean Walbro Corporation, a Delaware corporation, and
any Person who succeeds to all, or substantially all, of the assets and
business of Walbro Corporation.
"Consolidated Adjusted Funded Debt" as at any date of determination
thereof shall mean Consolidated Funded Debt as at such date minus the sum of
(i) the unpaid principal amount of Convertible Subordinated Notes, and (ii) the
excess of the amount of Revolving Credit Debt outstanding on the date of
determination over the Maximum Outstanding under Revolving Credit Debt during
the applicable Low Period. For purposes of this definition:
(a) "Low Period" shall mean the period of 30 consecutive
days for which the Maximum Outstanding is the lowest of any period
of 30 consecutive days during the period of 12 consecutive months
ending with the date of determination of Consolidated Adjusted
Funded Debt.
(b) "Maximum Outstanding" shall mean the maximum amount
of the unpaid principal amount of Revolving Credit Debt
outstanding at the close of business on any day during the Low
Period.
(c) "Revolving Credit Debt" shall mean the aggregate
principal amount of Consolidated Funded Debt attributable to
Indebtedness incurred under a working capital line, revolving
credit agreement or similar agreement which is renewable or
extendible at the option of the obligor for a period or periods of
more than one year from the date of origin.
"Consolidated Adjusted Intangible Assets" shall mean, as at any date
of determination thereof, the amount by which Intangible Assets associated with
assets acquired after March 31, 1994 exceeds 10% of Consolidated Total Assets,
in each case determined for the Company and its Subsidiaries on a consolidated
basis. "Intangible Assets" shall mean the amount of good will, patents, trade
names, trade marks, copyrights, franchises, experimental expense, organization
expense, unamortized debt discount and expense, deferred assets other than
prepaid insurance and prepaid taxes, the excess of cost of shares acquired over
book value of related assets and such other assets as are properly classified
as "intangible assets" in accordance with GAAP.
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Walbro Corporation Note Agreement
"Consolidated Adjusted Net Worth" shall mean, as of any date as of
which the amount thereof is to be determined,
(a) the amount of capital stock accounts plus (or minus
in the case of a deficit), the paid-in capital and retained
earnings of the Company and its Subsidiaries; plus
(b) to the extent not included in the computation
pursuant to the provisions of paragraph (a) above, an amount equal
to the liquidation preference of issued and outstanding preferred
stock of the Company; plus
(c) to the extent not included in the computation
pursuant to the provisions of paragraph (a) above, Minority
Interests; plus
(d) deferred income taxes; plus
(e) the unpaid principal amount of outstanding
Convertible Subordinated Notes; plus
(f) $2,900,000; minus
(g) the net book value, after deducting any reserves
applicable thereto, of all items of the following character which
are included in the assets of the Company and its Subsidiaries:
(i) Consolidated Adjusted Intangible Assets;
(ii) any increment resulting from any reappraisal,
revaluation or write-up of assets; and
(iii) treasury stock,
all determined on a consolidated basis for the Company and its Subsidiaries in
accordance with GAAP.
"Consolidated Funded Debt" shall mean all Funded Debt of the Company
and its Subsidiaries, determined on a consolidated basis eliminating
intercompany items.
"Consolidated Net Income" for any period shall mean the gross revenues
of the Company and its Subsidiaries for such period less all expenses and other
proper charges (including taxes on income), determined on a consolidated basis
after eliminating earnings or losses attributable to outstanding Minority
Interests, but excluding in any event:
(a) any (i) gains or losses on the sale or other
disposition of Investments or fixed or capital assets, and any
taxes on such excluded gains and any tax deductions or credits on
account of any such excluded losses and (ii) reversal of any
contingency
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Walbro Corporation Note Agreement
reserve, except to the extent that provision for such contingency
reserve shall have been made from income arising during such
period, which, in the case of clauses (i) and (ii), in the
aggregate exceed $500,000 per fiscal year of the Company;
(b) the proceeds of any life insurance policy;
(c) net earnings and losses of any Subsidiary accrued
prior to the date it became a Subsidiary;
(d) net earnings and losses of any corporation (other
than a Subsidiary), substantially all the assets of which have
been acquired in any manner by the Company or any Subsidiary,
realized by such corporation prior to the date of such
acquisition;
(e) net earnings and losses of any corporation (other
than a Subsidiary) with which the Company or a Subsidiary shall
have consolidated or which shall have merged into or with the
Company or a Subsidiary prior to the date of such consolidation or
merger;
(f) net earnings of any business entity (other than a
Subsidiary) in which the Company or any Subsidiary has an
ownership interest unless such net earnings shall have actually
been received by the Company or such Subsidiary in the form of
cash distributions;
(g) any portion of the net earnings of any Subsidiary
which for any reason is unavailable for payment of dividends to
the Company or any other Subsidiary;
(h) earnings resulting from any reappraisal, revaluation
or write-up of assets;
(i) any deferred or other credit representing any excess
of the equity in any Subsidiary at the date of acquisition thereof
over the amount invested in such Subsidiary; and
(j) any gain arising from the acquisition of any
Securities of the Company or any Subsidiary.
"Consolidated Total Assets" shall mean as of the date of any
determination thereof the total amount of all assets of the Company and its
Subsidiaries (less depreciation, depletion and other properly deductible
valuation reserves) determined on a consolidated basis in accordance with GAAP.
"Consolidated Total Capitalization" shall mean as of the date of any
determination thereof the sum of Consolidated Adjusted Net Worth and
Consolidated Adjusted Funded Debt.
"Convertible Subordinated Notes" shall mean promissory notes of the
Company evidencing Indebtedness incurred in connection with the acquisition of
a business entity or
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<PAGE> 28
Walbro Corporation Note Agreement
all or substantially all of the assets comprising a business entity, provided
that such promissory notes shall be convertible or exchangeable for the common
stock of the Company and shall contain or have applicable thereto subordination
provisions substantially in the form set forth in Exhibit E attached hereto
providing for the subordination thereof to other Funded Debt of the Company,
including, without limitation, the Notes, or such other provisions as may be
approved in writing by the Holders holding not less than 66-2/3% in aggregate
principal amount of the outstanding Notes.
"Credit Agreement" shall mean that certain Credit Agreement dated as
of January 15, 1992 among the Company, NBD Bank, N.A., as agent and the other
banks named on the signature pages thereof, as the same may be amended,
modified, waived or supplemented from time to time, and any extension, renewal
or replacement thereof.
"Current Debt" of any Person shall mean as of the date of any
determination thereof (i) all Indebtedness of such Person for borrowed money
other than Funded Debt of such Person and (ii) Guaranties by such Person of
Current Debt of others.
"Default" shall mean any event or condition the occurrence of which
would, with the lapse of time or the giving of notice, or both, constitute an
Event of Default.
"Domestic Subsidiary" shall mean any Subsidiary which is organized
under the laws of the United States or any State thereof.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended, and any successor statute of similar import, together with
the regulations thereunder, in each case as in effect from time to time.
References to sections of ERISA shall be construed to also refer to any
successor sections.
"ERISA Affiliate" shall mean any corporation, trade or business that
is, along with the Company, a member of a controlled group of corporations or a
controlled group of trades or businesses, as described in section 414(b) and
414(c), respectively, of the Code or Section 4001 of ERISA.
"Event of Default" shall have the meaning set forth in Section 6.1.
"Funded Debt" of any Person shall mean (i) all Indebtedness of such
Person for borrowed money or which has been incurred in connection with the
acquisition of assets in each case having a final maturity of one or more than
one year from the date of origin thereof (or which is renewable or extendible
at the option of the obligor for a period or periods more than one year from
the date of origin), excluding all payments in respect thereof that are
required to be made within one year from the date of any determination of
Funded Debt, whether or not the obligation to make such payments shall
constitute a current liability of the obligor under GAAP, (ii) all Capitalized
Rentals of such Person, and (iii) all Guaranties by such Person of Funded Debt
of others.
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<PAGE> 29
Walbro Corporation Note Agreement
"GAAP" shall mean, as at any time, generally accepted accounting
principles at such time in the United States.
"Guaranties" by any Person shall mean all obligations (other than
endorsements in the ordinary course of business of negotiable instruments for
deposit or collection) of such Person guaranteeing, or in effect guaranteeing,
any Indebtedness, dividend or other obligation of any other Person (the
"primary obligor") in any manner, whether directly or indirectly, including,
without limitation, all obligations incurred through an agreement, contingent
or otherwise, by such Person: (i) to purchase such Indebtedness or obligation
or any property or assets constituting security therefor, (ii) to advance or
supply funds (x) for the purchase or payment of such Indebtedness or
obligation, (y) to maintain working capital or other balance sheet condition or
otherwise to advance or make available funds for the purchase or payment of
such Indebtedness or obligation, (iii) to lease property or to purchase
Securities or other property or services primarily for the purpose of assuring
the owner of such Indebtedness or obligation of the ability of the primary
obligor to make payment of the Indebtedness or obligation, or (iv) otherwise to
assure the owner of the Indebtedness or obligation of the primary obligor
against loss in respect thereof. For the purposes of all computations made
under this Agreement, a Guaranty in respect of any Indebtedness for borrowed
money shall be deemed to be Indebtedness equal to the principal amount of such
Indebtedness for borrowed money which has been guaranteed, and a Guaranty in
respect of any other obligation or liability or any dividend shall be deemed to
be Indebtedness equal to the maximum aggregate amount of such obligation,
liability or dividend.
"Holder" shall mean any Person which is, at the time of reference, the
registered Holder of any Note.
"Indebtedness" of any Person shall mean and include all obligations of
such Person which in accordance with GAAP shall be classified upon a balance
sheet of such Person as liabilities of such Person, and in any event shall
include all (i) obligations of such Person for borrowed money or which has been
incurred in connection with the acquisition of property or assets, (ii)
obligations secured by any Lien upon property or assets owned by such Person,
even though such Person has not assumed or become liable for the payment of
such obligations, (iii) obligations created or arising under any conditional
sale or other title retention agreement with respect to property acquired by
such Person, notwithstanding the fact that the rights and remedies of the
seller, lender or lessor under such agreement in the event of default are
limited to repossession or sale of property, (iv) Capitalized Rentals and (v)
Guaranties of obligations of others of the character referred to in this
definition.
"Institutional Holder" shall mean any Holder which is a Purchaser or
an insurance company, bank, savings and loan association, trust company,
investment company, charitable foundation, employee benefit plan (as defined in
ERISA) or other institutional investor or financial institution and, for
purposes of the direct payment provisions of this Agreement, shall include any
nominee of any such Holder.
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<PAGE> 30
Walbro Corporation Note Agreement
"Investments" shall mean all investments, in cash or by delivery of
property made, directly or indirectly in any Person, whether by acquisition of
shares of capital stock, indebtedness or other obligations or Securities or by
loan, advance, capital contribution or otherwise; provided, however, that
"Investments" shall not mean or include routine investments in property to be
used or consumed in the ordinary course of business.
"Lien" shall mean any interest in property securing an obligation owed
to, or a claim by, a Person other than the owner of the property, whether such
interest is based on the common law, statute or contract, and including but not
limited to the security interest lien arising from a mortgage, encumbrance,
pledge, conditional sale or trust receipt or a lease, consignment or bailment
for security purposes. The term "Lien" shall include reservations, exceptions,
encroachments, easements, rights-of-way, covenants, conditions, restrictions,
leases and other title exceptions and encumbrances (including, with respect to
stock, stockholder agreements, voting trust agreements, buy-back agreements and
all similar arrangements) affecting property. For the purposes of this
Agreement, the Company or a Subsidiary shall be deemed to be the owner of any
property which it has acquired or holds subject to a conditional sale
agreement, Capitalized Lease or other arrangement pursuant to which title to
the property has been retained by or vested in some other Person for security
purposes and such retention or vesting shall constitute a Lien.
"Make-Whole Amount" shall mean in connection with any prepayment or
acceleration of the Notes the excess, if any, of (i) the aggregate present
value as of the date of such prepayment of each dollar of principal being
prepaid (taking into account the application of such prepayment required by
Section 2.1) and the amount of interest (exclusive of interest accrued to the
date of prepayment) that would have been payable in respect of such dollar if
such prepayment had not been made, determined by discounting such amounts at
the Reinvestment Rate from the respective dates on which they would have been
payable, over (ii) 100% of the principal amount of the outstanding Notes being
prepaid. If the Reinvestment Rate is equal to or higher than 7.68%, the
Make-Whole Amount shall be zero. For purposes of any determination of the
Make-Whole Amount:
"Reinvestment Rate" shall mean .60%, plus the yield to
maturity of the United States Treasury obligations with a maturity (as
compiled by and published on Telerate Page 5 or its successor not more
than five business days immediately preceding the payment date) most
nearly equal to the remaining Weighted Average Life to Maturity of the
principal being prepaid (taking into account the application of such
prepayment required by Section 2.1). If such rate shall not have been
so published, the Reinvestment Rate in respect of such payment date
shall mean the mean of the yields to maturity of United States
Treasury obligations (as compiled by and published in the United
States Federal Reserve Bulletin or its successor publication for each
of the two weeks immediately preceding the payment date) with a
constant maturity most nearly equal to the Weighted Average Life to
Maturity of the principal being prepaid (taking into account the
application of such prepayment required by Section 2.1). If no
maturity exactly corresponding to the Weighted Average Life to
Maturity shall appear therein, yields for the next longer and the next
shorter published maturities shall be calculated pursuant to the
foregoing sentence and the Reinvestment Rate shall be interpolated
-26-
<PAGE> 31
Walbro Corporation Note Agreement
from such yields on a straight-line basis (rounding to the nearest
month). If such rates shall not have been so published, the
Reinvestment Rate in respect of such determination date shall be
calculated pursuant to the next preceding sentence on the basis of the
arithmetic mean of the arithmetic means of the secondary market ask
rates, as of approximately 3:30 P.M., New York City time, on the last
business days of each of the two weeks preceding the payment date, for
the actively traded U.S. Treasury security or securities with a
maturity or maturities most closely corresponding to the remaining
Weighted Average Life to Maturity, as reported by three primary United
States Government securities dealers in New York City of national
standing selected in good faith by the Company.
"Weighted Average Life to Maturity" of the principal amount of
the Notes being prepaid shall mean, as of the time of any
determination thereof, the number of years obtained by dividing the
then Remaining Dollar-Years of such principal by the aggregate amount
of such principal. The term "Remaining Dollar-Years" of such
principal shall mean the amount obtained by (i) multiplying (x) the
remainder of (1) the amount of principal that would have become due on
each scheduled payment date if such prepayment had not been made, less
(2) the amount of principal on the Notes scheduled to become due on
such date after giving effect to such prepayment and the application
thereof in accordance with the provisions of Section 2.1, by (y) the
number of years (calculated to the nearest one-twelfth) which will
elapse between the date of determination and such scheduled payment
date, and (ii) totalling the products obtained in (i).
"Minority Interests" shall mean any shares of stock of any class of a
Subsidiary (other than directors' qualifying shares as required by law) that
are not owned by the Company and/or one or more of its Subsidiaries. Minority
Interests shall be valued by valuing Minority Interests constituting preferred
stock at the voluntary or involuntary liquidating value of such preferred
stock, whichever is greater, and by valuing Minority Interests constituting
common stock at the book value of capital and surplus applicable thereto
adjusted, if necessary, to reflect any changes from the book value of such
common stock required by the foregoing method of valuing Minority Interests in
preferred stock.
"Multiemployer Plan" shall have the same meaning as in ERISA.
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
"Person" shall mean an individual, partnership, corporation, trust or
unincorporated organization, and a government or agency or political
subdivision thereof.
"Plan" means a "pension plan," as such term is defined in ERISA,
established or maintained by the Company or any ERISA Affiliate or as to which
the Company or any ERISA Affiliate contributed or is a member or otherwise may
have any liability.
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<PAGE> 32
Walbro Corporation Note Agreement
"Plan Contributions" shall mean the fair market value of assets that
have been segregated and restricted for non-pension postretirement benefits in
accordance with SFAS 106.
"Priority Obligations" shall mean and include (i) all Funded Debt of
Subsidiaries (other than Funded Debt of Subsidiaries to the Company or a
Wholly-owned Subsidiary), (ii) all other Indebtedness of the Company and its
Subsidiaries secured by Liens permitted by paragraphs (f), (g) and (h) of
Section 5.8 (other than Indebtedness of Subsidiaries to the Company or a
Wholly-owned Subsidiary) and (iii) preferred stock of Subsidiaries held by any
Person other than the Company and its Wholly-owned Subsidiaries. The amount of
Priority Obligations outstanding as at any date of determination thereof shall
mean the sum, without duplication, of the aggregate unpaid principal amount of
all Indebtedness constituting Priority Obligations and the voluntary or
involuntary liquidating value, whichever is greater, of preferred stock
constituting Priority Obligations.
"Purchasers" shall have the meaning set forth in Section 1.1.
"Rentals" shall mean and include as of the date of any determination
thereof all fixed payments (including as such all payments which the lessee is
obligated to make to the lessor on termination of the lease or surrender of the
property) payable by the Company or a Subsidiary, as lessee or sublessee under
a lease of real or personal property, but shall be exclusive of any amounts
required to be paid by the Company or a Subsidiary (whether or not designated
as rents or additional rents) on account of maintenance, repairs, insurance,
taxes and similar charges. Fixed rents under any so-called "percentage leases"
shall be computed solely on the basis of the minimum rents, if any, required to
be paid by the lessee regardless of sales volume or gross revenues.
"Reportable Event" shall have the same meaning as in ERISA.
"Security" shall have the same meaning as in Section 2(1) of the
Securities Act of 1933, as amended.
The term "subsidiary" shall mean as to any particular parent
corporation any corporation of which more than 50% (by number of votes) of the
Voting Stock shall be beneficially owned, directly or indirectly, by such
parent corporation. The term "Subsidiary" shall mean a subsidiary of the
Company.
"Voting Stock" shall mean Securities of any class or classes, the
holders of which are ordinarily, in the absence of contingencies, entitled to
elect a majority of the corporate directors (or Persons performing similar
functions).
"Wholly-owned" when used in connection with any Subsidiary shall mean
a Subsidiary of which all of the issued and outstanding shares of stock (except
shares required as directors' qualifying shares) and all Funded Debt and
Current Debt shall be owned by the Company and/or one or more of its
Wholly-owned Subsidiaries.
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<PAGE> 33
Walbro Corporation Note Agreement
Section 8.2. Accounting Principles. Where the character or
amount of any asset or liability or item of income or expense is required to be
determined or any consolidation or other accounting computation is required to
be made for the purposes of this Agreement, the same shall be done in
accordance with GAAP, to the extent applicable, except where such principles
are inconsistent with the requirements of this Agreement.
Section 8.3. Directly or Indirectly. Where any provision in
this Agreement refers to action to be taken by any Person, or which such Person
is prohibited from taking, such provision shall be applicable whether the
action in question is taken directly or indirectly by such Person.
SECTION 9. MISCELLANEOUS.
Section 9.1. Registered Notes. The Company shall cause to be
kept at its principal office a register for the registration and transfer of
the Notes (hereinafter called the "Note Register"), and the Company will
register or transfer or cause to be registered or transferred as hereinafter
provided any Note issued pursuant to this Agreement.
At any time and from time to time any Holder which has been duly
registered as hereinabove provided may transfer such Note upon surrender
thereof at the principal office of the Company duly endorsed or accompanied by
a written instrument of transfer duly executed by the Holder or its attorney
duly authorized in writing.
The Person in whose name any registered Note shall be registered shall
be deemed and treated as the owner and holder thereof and a Holder for all
purposes of this Agreement. Payment of or on account of the principal,
premium, if any, and interest on any registered Note shall be made to or upon
the written order of such Holder.
Section 9.2. Exchange of Notes. At any time and from time to
time, upon not less than ten days' notice to that effect given by the Holder of
any Note initially delivered or of any Note substituted therefor pursuant to
Section 9.1, this Section 9.2 or Section 9.3, and, upon surrender of such Note
at its office, the Company will deliver in exchange therefor, without expense
to such Holder, except as set forth below, a Note for the same aggregate
principal amount as the then unpaid principal amount of the Note so
surrendered, or Notes in the denomination of $100,000 or any amount in excess
thereof as such Holder shall specify, dated as of the date to which interest
has been paid on the Note so surrendered or, if such surrender is prior to the
payment of any interest thereon, then dated as of the date of issue, registered
in the name of such Person or Persons as may be designated by such Holder, and
otherwise of the same form and tenor as the Notes so surrendered for exchange.
The Company may require the payment of a sum sufficient to cover any stamp tax
or governmental charge imposed upon such exchange or transfer.
Section 9.3. Loss, Theft, Etc. of Notes. Upon receipt of
evidence satisfactory to the Company of the loss, theft, mutilation or
destruction of any Note, and in the case of any such loss, theft or destruction
upon delivery of a bond of indemnity in such form and amount as shall be
reasonably satisfactory to the Company, or in the event of such mutilation upon
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<PAGE> 34
Walbro Corporation Note Agreement
surrender and cancellation of the Note, the Company will make and deliver
without expense to the Holder thereof, a new Note, of like tenor, in lieu of
such lost, stolen, destroyed or mutilated Note. If an Institutional Holder is
the owner of any such lost, stolen or destroyed Note, then the affidavit of an
authorized officer of such owner, setting forth the fact of loss, theft or
destruction and of its ownership of such Note at the time of such loss, theft
or destruction shall be accepted as satisfactory evidence thereof and no
further indemnity shall be required as a condition to the execution and
delivery of a new Note other than the written agreement of such owner to
indemnify the Company.
Section 9.4. Expenses, Stamp Tax Indemnity. Whether or not the
transactions herein contemplated shall be consummated, the Company agrees to
pay directly all of the Purchasers' out-of-pocket expenses in connection with
the preparation, execution and delivery of this Agreement and the transactions
contemplated hereby, including but not limited to the reasonable charges and
disbursements of Chapman and Cutler, special counsel to the Purchasers,
duplicating and printing costs and charges for shipping the Notes, adequately
insured to each Purchaser's home office or at such other place as such
Purchaser may designate, and all such expenses of the Holders relating to any
amendment, waivers or consents pursuant to the provisions hereof, including,
without limitation, any amendments, waivers, or consents resulting from any
work-out, renegotiation or restructuring relating to the performance by the
Company of its obligations under this Agreement and the Notes. The Company
also agrees that it will pay and save each Purchaser harmless against any and
all liability with respect to stamp and other taxes, if any, which may be
payable or which may be determined to be payable in connection with the
execution and delivery of this Agreement or the Notes, whether or not any Notes
are then outstanding. The Company agrees to protect and indemnify each
Purchaser against any liability for any and all brokerage fees and commissions
payable or claimed to be payable to any Person in connection with the
transactions contemplated by this Agreement.
Section 9.5. Powers and Rights Not Waived Remedies
Cumulative. No delay or failure on the part of any Holder in the exercise of
any power or right shall operate as a waiver thereof; nor shall any single or
partial exercise of the same preclude any other or further exercise thereof, or
the exercise of any other power or right, and the rights and remedies of each
Holder are cumulative to, and are not exclusive of, any rights or remedies any
such Holder would otherwise have.
Section 9.6. Notices. All communications provided for
hereunder shall be in writing and, if to a Holder, delivered or mailed prepaid
by registered or certified mail or overnight air courier, or by facsimile
communication, in each case addressed to such Holder at its address appearing
beneath its signature at the foot of this Agreement or such other address as
any Holder may designate to the Company in writing, and if to the Company,
delivered or mailed by registered or certified mail or overnight air courier,
or by facsimile communication, to the Company at the address beneath its
signature at the foot of this Agreement or to such other address as the Company
may in writing designate to the Holders; provided, however, that a notice to a
Holder by overnight air courier shall only be effective if delivered to such
Holder at a street address designated for such purpose in accordance with this
Section 9.6, and a notice to such Holder by facsimile communication shall only
be effective if made by confirmed transmission to such Holder at a telephone
number
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<PAGE> 35
Walbro Corporation Note Agreement
designated for such purpose in accordance with this Section 9.6 and promptly
followed by the delivery of such notice by registered or certified mail or
overnight air courier, as set forth above.
Section 9.7. Successors and Assigns. This Agreement shall be
binding upon the Company and its successors and assigns and shall inure to the
benefit of each Purchaser and its successor and assigns, including each
successive Holder.
Section 9.8. Survival of Covenants and Representations. All
covenants, representations and warranties made by the Company herein and in any
certificates delivered pursuant hereto, whether or not in connection with the
Closing Date, shall survive the closing and the delivery of this Agreement and
the Notes.
Section 9.9. Severability. Should any part of this Agreement
for any reason be declared invalid or unenforceable, such decision shall not
affect the validity or enforceability of any remaining portion, which remaining
portion shall remain in force and effect as if this Agreement had been executed
with the invalid or unenforceable portion thereof eliminated and it is hereby
declared the intention of the parties hereto that they would have executed the
remaining portion of this Agreement without including therein any such part,
parts or portion which may, for any reason, be hereafter declared invalid or
unenforceable.
Section 9.10. Governing Law. This Agreement and the Notes
issued and sold hereunder shall be governed by and construed in accordance with
Illinois law.
Section 9.11. Captions. The descriptive headings of the various
Sections or parts of this Agreement are for convenience only and shall not
affect the meaning or construction of any of the provisions hereof.
Section 9.12. Additional Indebtedness. Subject to the terms and
provisions hereof (including, but not limited to, Section 5.7) the Company may,
from time to time, issue and sell additional senior promissory notes and may,
in connection with the documentation thereof, incorporate by reference various
provisions of this Agreement. Such incorporation by reference shall not
modify, dilute or otherwise affect the terms and provisions hereof including,
without limitation, the priority of the Notes and the percentage of the Notes
required to approve an amendment or effectuate a waiver under the provisions of
Section 7 or the percentages of the Notes required to accelerate the Notes or
rescind such an acceleration under the provisions of Section 6.
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<PAGE> 36
Walbro Corporation Note Agreement
The execution hereof by the Purchasers shall constitute a contract among the
Company and the Purchasers for the uses and purposes hereinabove set forth.
This Agreement may be executed in any number of counterparts, each executed
counterpart constituting an original but all together only one agreement.
ATTEST: WALBRO CORPORATION
By Daniel L. Hittler By M. A. Shope
---------------------- --------------------
Its Secretary Its Chief Financial
Officer and Treasurer
WALBRO CORPORATION
6242 Garfield Street
Cass City, Michigan 48726
Attention: Chief Financial Officer
Telefacsimile: (517) 872-2301
Confirmation: (517) 872-2131
<PAGE> 37
Walbro Corporation Note Agreement
Accepted as of October 1, 1994: PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
By Warren Shank
-------------
Its WARREN SHANK
COUNSEL
By Donald D. Brattebo
------------------------
Its DONALD D. BRATTEBO
SECOND VICE PRESIDENT
SECURITIES INVESTMENT
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
711 High Street
Des Moines, Iowa 50392-0800
Attention: Investment Department--Securities Division
Telefacsimile: (515) 248-2490
Confirmation: (515) 248-3495
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as
"Walbro Corporation, 7.68% Senior Notes due October 1, 2004, PPN 931154 A*9,
Bond Number 1-B-60093 in the case of the $16,000,000 Note or Bond Number
16-B-60093 in the case of the $4,000,000 Note, principal, premium or interest")
to:
Norwest Bank Iowa, N.A.
7th and Walnut Streets
Des Moines, Iowa 50309
ABA #073 000 228
for credit to: Principal Mutual Life Insurance Company's
General Account Number 014752 in the case of the $16,000,000 Note or Principal
Mutual Life Insurance Company's Account No. 032395 in the case of the
$4,000,000 Note
<PAGE> 38
Walbro Corporation Note Agreement
Notices
All notices concerning payment on or in respect of the Notes, to:
Principal Mutual Life Insurance Company
711 High Street
Des Moines, Iowa 50392-0960
Attention: Investment Department, Accounting & Treasury
All notices and communications other than those in respect to payments to be
addressed as first provided above.
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 42-012-7290
<PAGE> 39
Walbro Corporation Note Agreement
Accepted as of October 1, 1994:
THE MUTUAL LIFE INSURANCE COMPANY OF
NEW YORK
By /s/ Frank G. Simunek
Its FRANK G. SIMUNEK
MANAGING DIRECTOR
THE MUTUAL LIFE INSURANCE COMPANY
OF NEW YORK
1740 Broadway
New York, New York 10019
Attention: MONY Capital Management Unit
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as
"Walbro Corporation, 7.68% Senior Notes due October 1, 2004, PPN 931154 A*9,
principal, premium or interest") to:
Chemical Bank (ABA #021000128)
New York, New York
for credit to: (A) In the case of the Note issued in the original
principal amount of $8,000,000, The Mutual
Life Insurance Company of New York Security
Remittance Account Number 321-023803; and
(B) In the case of the Note issued in the original
principal amount of $1,000,000, The Mutual
Life Insurance Company of New York Account Number
323-161235.
Notices
All notices of payment on or in respect of the Notes and written confirmation
of each such payment to:
Glenpointe Marketing & Operations Center--MONY
Glenpointe Center West, 500 Frank W. Burr Blvd.
Teaneck, New Jersey 07666-6888
Attention: Securities Custody
Telecopy: (201) 907-6979
All notices and communications other than those in respect to payments to be
addressed as first provided above.
<PAGE> 40
Walbro Corporation Note Agreement
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 13-1632487
<PAGE> 41
Walbro Corporation Note Agreement
Accepted as of October 1, 1994:
MONY LIFE INSURANCE COMPANY OF
AMERICA
By /s/ Frank G. Simunek
Its FRANK G. SIMUNEK
AUTHORIZED AGENT
MONY LIFE INSURANCE COMPANY OF AMERICA
c/o The Mutual Life Insurance Company of New York
1740 Broadway
New York, New York 10019
Attention: MONY Capital Management Unit
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as
"Walbro Corporation, 7.68% Senior Notes due October 1, 2004, PPN 931154 A*9,
principal, premium or interest") to:
Chemical Bank (ABA #021000128)
New York, New York
for credit to: MONY Life Insurance Company of America
Account Number 323-161243
Notices
All notices of payment on or in respect of the Notes and written confirmation
of each such payment to:
Glenpointe Marketing & Operations Center--MONY
Glenpointe Center West, 500 Frank W. Burr Blvd.
Teaneck, New Jersey 07666-6888
Attention: Securities Custody
Telecopy: (201) 907-6979
All notices and communications other than those in respect to payments to be
addressed as first provided above.
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 86-0222062
<PAGE> 42
Walbro Corporation Note Agreement
Accepted as of October 1, 1994:
NATIONWIDE LIFE INSURANCE COMPANY
By /s/ James W. Pruden
---------------------
Its JAMES W. PRUDEN
VICE PRESIDENT
MUNICIPAL SECURITIES
NATIONWIDE LIFE INSURANCE COMPANY
One Nationwide Plaza (1-33-07)
Columbus, Ohio 43215-2220
Attention: Corporate Fixed-Income Securities
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as
"Walbro Corporation, 7.68% Senior Notes due October 1, 2004, PPN 931154 A*9,
principal, premium or interest") to:
Morgan Guaranty Trust Company of New York (ABA #021-000-238)
JOURNAL #999-99-024
F/A/O Nationwide Life Insurance Company
Custody A/C #71615
Attention: Custody Service Department
Notices
All notices of payment on or in respect of the Notes and written confirmation
of each such payment to:
Nationwide Life Insurance Company
One Nationwide Plaza (1-32-09)
Columbus, Ohio 43215-2220
Attention: Corporate Money Management
All notices and communication other than those in respect to payments to be
addressed as first provided above.
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 31-4156830
<PAGE> 43
Walbro Corporation Note Agreement
Accepted as of October 1, 1994:
FINANCIAL HORIZONS LIFE INSURANCE
COMPANY
By /s/ James W. Pruden
---------------------
Its JAMES W. PRUDEN
VICE PRESIDENT
MUNICIPAL SECURITIES
FINANCIAL HORIZONS LIFE INSURANCE COMPANY
One Nationwide Plaza (1-33-07)
Columbus, Ohio 43215-2220
Attention: Corporate Fixed-Income Securities
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as
"Walbro Corporation, 7.68% Senior Notes due October 1, 2004, PPN 931154 A*9,
principal or interest") to:
Morgan Guaranty Trust Company of New York (ABA #021-000-238)
JOURNAL #999-99-024
F/A/O Financial Horizons Life Insurance Company
Custody A/C #71620
Attention: Custody Service Department
Notices
All notices of payment, on or in respect of the Notes, and written confirmation
of each such payment to be addressed:
Financial Horizons Life Insurance Company
One Nationwide Plaza (1-32-09)
Columbus, Ohio 43215-2220
Attention: Corporate Money Management
All notices and communications other than those in respect of payments to be
addressed as first provided above.
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 31-1000740
<PAGE> 44
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
NAMES OF PURCHASERS OF NOTES TO BE
PURCHASED
<S> <C>
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY $20,000,000(1)
THE MUTUAL LIFE INSURANCE COMPANY 9,000,000(2)
OF NEW YORK
MONY LIFE INSURANCE COMPANY OF AMERICA 6,000,000
NATIONWIDE LIFE INSURANCE COMPANY 8,000,000
FINANCIAL HORIZONS LIFE INSURANCE COMPANY 2,000,000
Total $45,000,000
</TABLE>
---------------
1 To be evidenced by two Notes in the original principal amounts of
$16,000,000 and $4,000,000, respectively.
2 To be evidenced by two Notes in the original principal amounts of
$8,000,000 and $1,000,000, respectively.
SCHEDULE I
(to Note Agreement)
<PAGE> 45
WALBRO CORPORATION
7.68% Senior Note
Due October 1, 2004
PPN: 931154 A*9
No.
_________, 19__
$
Walbro Corporation, a Delaware corporation (the "Company"), for value
received, hereby promises to pay to
or registered assigns
on the first day of October, 2004
the principal amount of
DOLLARS ($____________)
and to pay interest (computed on the basis of a 360-day year of twelve
30-day months) on the principal amount from time to time remaining unpaid
hereon at the rate of 7.68% per annum from the date hereof until maturity,
payable quarterly on the first day of each January, April, July and October in
each year (commencing on the first of such dates after the date hereof) and at
maturity. The Company agrees to pay interest on overdue principal (including
any overdue required or optional prepayment of principal) and premium, if any,
and (to the extent legally enforceable) on any overdue installment of interest,
at the rate of 9.68% per annum after the due date, whether by acceleration or
otherwise, until paid. Both the principal hereof and interest hereon are
payable at the principal office of the Company in Cass City, Michigan in coin
or currency of the United States of America which at the time of payment shall
be legal tender for the payment of public and private debts.
This Note is one of the 7.68% Senior Notes due October 1, 2004 (the
"Notes") of the Company in the aggregate principal amount of $45,000,000 issued
or to be issued under and pursuant to the terms and provisions of the Note
Agreement dated as of October 1, 1994 (the "Note Agreement"), entered into by
the Company with the original Purchasers therein referred to, and this Note and
the holder hereof are entitled equally and ratably with the holders of all
other Notes outstanding under the Note Agreement to all the benefits provided
for thereby or referred to therein. Reference is hereby made to the Note
Agreement for a statement of such rights and benefits.
EXHIBIT A
(to Note Agreement)
<PAGE> 46
This Note and the other Notes outstanding under the Note Agreement may
be declared due prior to their expressed maturity dates and certain prepayments
are required to be made thereon, all in the events, on the terms and in the
manner and amounts as provided in the Note Agreement.
The Notes are not subject to prepayment or redemption at the option of
the Company prior to their expressed maturity dates except on the terms and
conditions and in the amounts and with the premium, if any, set forth in the
Note Agreement.
This Note is registered on the books of the Company and is
transferable only by surrender thereof at the principal office of the Company
duly endorsed or accompanied by a written instrument of transfer duly executed
by the registered holder of this Note or its attorney duly authorized in
writing. Payment of or on account of principal, premium, if any, and interest
on this Note shall be made only to or upon the order in writing of the
registered holder.
WALBRO CORPORATION
By_________________________
Its
A-2
<PAGE> 47
================================================================================
GUARANTY AGREEMENT
Dated as of October 1, 1994
of
[_____________________]
Re:
$45,000,000 7.68% Senior Notes
Due October 1, 2004
of
WALBRO CORPORATION
================================================================================
EXHIBIT B
(to Note Agreement)
<PAGE> 48
<TABLE>
<CAPTION>
TABLE OF CONTENTS
SECTION HEADING PAGE
<S> <C> <C>
Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Recitals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1. GUARANTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2. PAYMENT UPON CERTAIN EVENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 3. GENERAL PROVISIONS RELATING TO THE GUARANTY . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 4. WAIVERS; OBLIGATION UNCONDITIONAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 5. COLLECTION EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 6. NO SUBROGATION UNTIL PAYMENT IN FULL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 7. REPRESENTATIONS AND WARRANTIES OF GUARANTOR . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 8. CORPORATE EXISTENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 9. LIMITATION ON CONSOLIDATION, MERGER, SALE, LEASE OR OTHER DISPOSITION BY GUARANTOR . . . . . . . 4
SECTION 10. INTERPRETATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 11. SUCCESSORS AND ASSIGNS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 12. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 13. LIMITATION ON MAXIMUM LIABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 14. COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 15. SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
</TABLE>
-i-
<PAGE> 49
<TABLE>
<S> <C> <C>
SECTION 16. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
</TABLE>
-ii-
<PAGE> 50
GUARANTY AGREEMENT
GUARANTY AGREEMENT (this "Guaranty") dated as of October 1, 1994 by
[____________________], a ________ corporation (the "Guarantor").
RECITALS:
A. Walbro Corporation, a Delaware corporation (the "Company") has
entered into that certain Note Agreement dated as of October 1, 1994 (the "Note
Agreement") with the institutional investors (the "Note Purchasers") named in
the Note Agreement, providing for the sale by the Company of its $45,000,000
aggregate principal amount of 7.68% Senior Notes due October 1, 2004 (the
"Notes").
B. The Guarantor is desirous that the Note Purchasers enter into
the Note Agreement and purchase the Notes, and by doing so the Note Purchasers
will be conferring financial and other benefits on the Guarantor, and as an
inducement to enter into the Note Agreement and in consideration therefor the
Note Purchasers have required that the Guarantor enter into this Guaranty.
C. Capitalized terms used herein shall have the meanings assigned
in the Note Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained and to aid the sale of the Notes and to induce the
Note Purchasers, and every future holder of the Notes, to purchase the Notes,
it is hereby agreed as follows:
SECTION 1. GUARANTY.
The Guarantor hereby unconditionally guarantees to each holder
of any Note (collectively the "Noteholders" and each individually
a "Noteholder") for so long as the Indebtedness under the Credit
Agreement remains outstanding and is guaranteed by the Guarantor
(1) the due and punctual payment at maturity, whether at
stated maturity, by acceleration, by notice of prepayment or
otherwise, of the principal of and premium, if any, and interest
on the Notes in accordance with the terms and conditions thereof
and of the Note Agreement, and (2) the prompt performance and
compliance by the Company with each of its other obligations under
the Note Agreement.
SECTION 2. PAYMENT UPON CERTAIN EVENTS.
The Guarantor agrees that, if any of the Events of Default described
in Section 6.1(M), (N) or (O) of the Note Agreement occurs, the Guarantor shall
pay forthwith to the Noteholders, without demand or notice and whether or not
there has been any other default under the Note Agreement or the Notes, the
whole amount of the principal of and Make-Whole
<PAGE> 51
Walbro Corporation Guaranty Agreement
Amount, if any, on the Notes then outstanding and any unpaid interest thereon,
with interest thereon, so far as permitted by law, at the rate of 9.68% per
annum.
SECTION 3. GENERAL PROVISIONS RELATING TO THE GUARANTY.
Each and every Event of Default under the Note Agreement shall give
rise to a separate claim and cause of action hereunder, and separate claims or
suits may be made and brought, as the case may be, hereunder as each such
default occurs. The obligations hereunder are independent of the obligations
of the Company to pay the principal of and premium, if any, and interest on the
Notes, and a separate action or actions may be brought and prosecuted against
the Guarantor whether such action is brought and prosecuted against the Company
or any other guarantor, or whether the Company is joined in any such action or
actions. The obligations of the Guarantor hereunder shall be reinstated and
revived, and the rights of the Noteholders shall continue, with respect to any
amount at any time paid on account of the obligations guaranteed hereby, which
shall thereafter be required to be restored or returned by the Noteholders upon
the bankruptcy, insolvency or reorganization of the Company, or otherwise, all
as though such amount had not been paid.
SECTION 4. WAIVERS; OBLIGATION UNCONDITIONAL.
The Guarantor assents to all the terms, covenants and conditions of
the Notes and the Note Agreement, and irrevocably waives presentation, demand
for payment, or protest, of any of the Notes, any and all notice of any such
presentation, demand or protest, notice of any default or event of default
under the Note Agreement, notice of acceptance of this guarantee or of the
terms and provisions thereof by any Noteholder, any requirement of diligence or
promptness on the part of any Noteholder in the enforcement of rights under the
provisions hereof, of the Note Agreement or of the Notes, or any right to
require any Noteholder to proceed first against the Company. The obligations
of the Guarantor hereunder shall be unconditional irrespective of the
genuineness, validity, regularity or enforceability of the Note Agreement or of
the Notes or of any other circumstance which might otherwise constitute a legal
or equitable discharge of a surety or guarantor. The obligations of the
Guarantor hereunder shall not be affected by:
(a) the recovery of any judgment against the Company, or
by the levy of any writ or process of execution under any such
judgment, or by any action or proceeding taken by any Noteholder,
either under the Notes or under the Note Agreement for the
enforcement thereof, or hereof, or in the exercise of any right or
power given or conferred thereby, or hereby, or
(b) any delay, failure or omission upon the part of any
Noteholder to enforce any of the rights or powers given or
conferred hereby or by the Note Agreement, or by any delay,
failure or omission upon the part of any Noteholder to enforce any
right of any Noteholder against the Company, or by any action by
any Noteholder in granting indulgence to the Company, or in
waiving or acquiescing in any default or
-2-
<PAGE> 52
Walbro Corporation Guaranty Agreement
event of default upon the part of the Company under the Notes or
under the Note Agreement, or
(c) the consolidation or merger of the Company or any of
its Subsidiaries with or into any other corporation or
corporations or any sale, lease or other disposition of the
Company or any of its Subsidiaries' properties as an entirety or
substantially as an entirety to any other corporation, or
(d) the acceptance of any additional security or other
guaranty, the advance of additional money to the Company or any
other Person, the renewal or extension of any amounts guaranteed
hereby, or the sale, release, substitution or exchange of any
security for the amounts guaranteed hereby, or
(e) any defense (other than the full and indefeasible
performance by the Company of its obligations under the Note
Agreement and the Notes) whatsoever that the Company or any other
Person might have to the payment of any of the amounts or
obligations guaranteed hereby or to the performance or observance
of any of the provisions of the Note Agreement or the Notes,
whether through the satisfaction or purported satisfaction by the
Company or any other Person of its debts due to any cause such as
bankruptcy, insolvency, receivership, merger, consolidation,
reorganization, dissolution, liquidation, winding-up or otherwise,
or
(f) impossibility or illegality of performance on the
part of the Company or any other Person of its obligations under
the Note Agreement or the Notes, or
(g) any renewal, extension, refunding, amendment or
modification of or addition or supplement to or deletion from any
of the terms of the Note Agreement or the Notes, or any other
agreement which may be made relating to any such instruments which
does not specifically amend or specifically modify the terms of
this Guaranty, or
(h) any amendment, compromise, release or consent or
other action or inaction in respect of any of the terms of the
Note Agreement or the Notes (other than any such amendment,
compromise, release or consent or other action which, by its
terms, expressly modifies the terms and provisions hereof), or
(i) any bankruptcy, insolvency, reorganization,
arrangement, adjustment, composition, liquidation, or the like of
the Company or any of its Subsidiaries, or
(j) absence of any notice to, or knowledge by, the
Guarantor of the existence or occurrence of any of the matters or
events set forth in the foregoing subdivisions (a) through (i), or
(k) any other act or delay or failure to act, or any
other thing, which may or might in any manner or to any extent
vary the risk of the Guarantor hereunder;
-3-
<PAGE> 53
Walbro Corporation Guaranty Agreement
it being the purpose and intent of the parties hereto that the obligations of
the Guarantor hereunder shall be absolute and unconditional under any and all
circumstances, and shall not be discharged except by payment as herein
provided, and then only to the extent of such payment or payments.
SECTION 5. COLLECTION EXPENSES.
In the event that the Guarantor shall be required to make any payment
to any Noteholder pursuant to this Guaranty, it shall, in addition to such
payment, pay to such Noteholder such further amount as shall be sufficient to
cover the reasonable costs and expenses of collection, including a reasonable
compensation to attorneys, and any expenses or liabilities incurred by any
Noteholder hereunder. The covenants contained in this Guaranty may be enforced
by any Noteholder.
SECTION 6. NO SUBROGATION UNTIL PAYMENT IN FULL.
No payment by the Guarantor pursuant to the provisions hereof to any
Noteholder shall entitle the Guarantor, by subrogation to the rights of the
holders of the Notes in respect of which such payment is made or otherwise, to
any payment by the Company or out of the property of the Company, except after
payment in full of the entire principal of, premium, if any, and interest on
the Notes and any other amounts due under the Note Agreement, or provision for
such payment satisfactory to the holders of the Notes.
SECTION 7. REPRESENTATIONS AND WARRANTIES OF GUARANTOR.
The Guarantor does hereby represent and warrant that the
representations and warranties set forth in Exhibit C to the Note Agreement are
true and correct as of the date hereof (or, to the extent any such
representations or warranties expressly relate to an earlier date, as of such
earlier date).
SECTION 8. CORPORATE EXISTENCE.
The Guarantor will do all things necessary to preserve and keep in
full force and effect its corporate existence, rights and franchises; provided,
however, that nothing in this Section shall prevent the withdrawal by the
Guarantor from any State or jurisdiction of its qualification as a foreign
corporation and its authorization to do business in such State or jurisdiction
or a consolidation or merger permitted by Section 9 hereof.
SECTION 9. LIMITATION ON CONSOLIDATION, MERGER, SALE, LEASE OR
OTHER DISPOSITION BY GUARANTOR.
The Guarantor agrees that it will not consolidate with, merge into, or
sell, lease or otherwise dispose of all or substantially all its property as an
entirety to, any other corporation unless the corporation (if other than such
Guarantor) resulting from any such
-4-
<PAGE> 54
Walbro Corporation Guaranty Agreement
consolidation or merger or to which such sale, lease or other disposition shall
have been made shall, immediately upon such consolidation, merger, sale, lease
or other disposition,
(a) expressly assume in writing the due and punctual
performance and observance of all the terms, covenants, agreements
and conditions of this Guaranty to be performed or observed by
such Guarantor to the same extent as if such successor corporation
instead of such Guarantor had been the original party hereto, and
(b) furnish a true and complete copy of the assumption to
each Noteholder, together with an opinion of counsel opining
favorably as to the due authorization, execution and
enforceability of the assumption;
provided, however, that no such sale, lease or other disposition shall release
such Guarantor from any of its obligations under this Guaranty.
SECTION 10. INTERPRETATION.
The Guarantor acknowledges and agrees that the obligations and
agreements contained herein including, without limitation thereof, the
agreements of the Guarantor under Sections 7 and 8 hereof are in addition to,
and not in limitation of, any limitations or restrictions to which such
Guarantor may be subject under the Note Agreement.
SECTION 11. SUCCESSORS AND ASSIGNS.
All covenants and agreements contained in this Guaranty by or on
behalf of the Guarantor shall be binding upon the Guarantor and its successors
and assigns and shall inure to the benefit of the Note Purchasers and each and
every Noteholder.
SECTION 12. NOTICES.
All notices, requests, demands, waivers or other communications
required or contemplated hereby shall be given or made in the manner provided
in Section 9.6 of the Note Agreement at such Guarantor's address: 6242
Garfield Street, Cass City, Michigan 48726, Attention: Chief Financial
Officer.
SECTION 13. LIMITATION ON MAXIMUM LIABILITY.
Notwithstanding anything in this Agreement to the contrary, the
maximum liability of the Guarantor under this Agreement shall in no event
exceed the Guarantor's Maximum Guaranteed Amount. "Maximum Guaranteed Amount"
of the Guarantor shall mean the sum of (i) any Valuable Transfer (as
hereinafter defined), plus (to the extent not included in (i) above) (ii) $1.00
less than the amount which would render this Agreement void or voidable under
applicable law. The term "Valuable Transfer" shall mean all proceeds of any
loans made or notes issued pursuant to the Note Agreement which are directly or
indirectly advanced by the Company to the Guarantor in any form whatsoever
(including, without
-5-
<PAGE> 55
Walbro Corporation Guaranty Agreement
limitation, loans, advances or capital contributions) or used, directly or
indirectly, to enable the Company or the Guarantor to carry any such advance.
SECTION 14. COUNTERPARTS.
This Guaranty may be executed simultaneously in several counterparts,
each of which shall be deemed an original, and all of which together shall
constitute one and the same instrument.
SECTION 15. SEVERABILITY.
In case any one or more of the provisions contained in this Guaranty
shall be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions of this Guaranty shall
not in any way be affected or impaired thereby.
SECTION 16. GOVERNING LAW.
This Guaranty and all rights arising hereunder shall be construed and
determined in accordance with the laws of the State of Illinois and the
performance thereof shall be governed and enforced in accordance with such
laws.
-6-
<PAGE> 56
Walbro Corporation Guaranty Agreement
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly
executed as of the day and year first above written.
[___________________________________]
By _________________________________
-7-
<PAGE> 1
EXHIBIT 10.24
AGREEMENT
This Agreement dated February 7th, 1995 by and among:
1. Walbro Corporation, a Delaware corporation whose registered office is
located at Cass City, Michigan 48726 USA, represented by Mr. Gary L.
Vollmar (Walbro).
2. Walbro Automotive Corporation (Automotive), a Delaware corporation
whose registered office is located at Auburn Hills, Michigan 48326
USA, represented by Mr. Gary L. Vollmar.
3. Magneti Marelli France S.A., a company incorporated under the laws of
France with share capital of FRF 424,494,000, whose registered office
is located at 19 rue Lavoisier, 9200 Nanterre France and registered at
the Company and Commercial Registry of Nanterre number B652044827,
represented by Mr. Frederic Girardot (MM) which came to the rights of
Jaeger S.A. when it was absorbed by a merger into MM on July 1, 1994.
(collectively the "Parties")
R E C I T A L S
a. Walbro and Jaeger entered into a Joint Venture Agreement dated
June 17, 1991 establishing a Joint Venture Company in France (JV France) for
the purpose of developing, manufacturing and marketing integrated TSS and their
component elements for sale to designated markets in Europe (hereinafter the
First Agreement).
b. In addition to the First Agreement Walbro and Jaeger entered
into a number of Ancillary Agreements, the list of which is contained in
Appendix B to this Agreement.
c. Automotive and Jaeger entered into a Joint Venture Agreement
dated as of January 1, 1993 establishing a JV in Brasil (JV Brasil) for the
purpose of developing, manufacturing and marketing integrated FDS and their
component elements for sale to designated markets in South America (hereinafter
the Second Agreement).
d. Together with the Second Agreement, Automotive and Jaeger
entered into a number of Ancillary Agreements the list of which is contained in
Appendix D to this Agreement.
e. The Parties believe that the automotive component market is a
worldwide market in which there are few car manufacturers which select their
suppliers based on the capability of such suppliers to deliver and service on a
worldwide basis. The Parties therefore decided to restructure their
cooperation with the purpose of eliminating any barrier among the existing
Joint Ventures and also with the view of setting up, in the near future, new
companies in other countries.
<PAGE> 2
f. The Parties also believe that it is necessary for them to
strengthen their cooperation by providing the JV France with the technical
capability and technology necessary to compete independently in the market and
to approach on its own customers around the world.
g. In furtherance of these objectives, the Parties hereby agree
to amend and modify the First Agreement with respect to the products,
territory, structure of JV Group and those other changes as detailed below.
Unless otherwise indicated, terms used in the Agreement shall have the same
meanings as in the First Agreement, and Second Agreement, where applicable.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and
undertakings provided herein, the Parties agree as follows:
GENERAL PROVISIONS
1. The First Agreement is hereby confirmed and remains in effect
to the extent it is not amended or modified by this Agreement.
2. The cooperation among the Parties will take the form of a
group of companies controlled by JV France which shall hereinafter be
identified as the "JV Group".
3. Concurrent with this Agreement the Parties hereto shall cause
the transfer of all of the stock of Marwal do Brasil ("JV Brasil") to JV
France, and shall cancel the Second Agreement effective as of the date of
transfer. In addition the product definition for the JV Brasil shall include
fuel tanks.
4. The Parties hereby agree to cause JV France to form a Sociedad
Anonima de Capital Variable ("JV Mexico") as a member of JV Group which will be
owned 95% by JV France and 5% by Automotive. The initial paid up capital of JV
Mexico shall be equivalent to $4,000,000.
JV Mexico shall acquire from Magneti Marelli do Mexico fixed assets valued at
$2,600,000 (as depreciable assets); the capital stock of F.E.S.A. valued at
$150,000 and the stock of the level sensor business valued at market value.
JV Mexico shall not solicit any customer in the United States or Canada;
however, should JV Mexico be approached by any customer purchasing product for
resale in the United States or Canada, it shall immediately inform Automotive
which shall have full responsibility for dealing with such customers.
Furthermore the prices of the products to be sold by JV Mexico within Mexico to
Car Manufacturer controlled by any of Ford General Motors or Chrysler shall be
mutually agreed upon by the Parties.
5. Should Automotive complete the purchase of the plastic fuel
tank division of Dyno Industrier A.S. ("Tank Company") it will cause JV France
and the Tank Company to set up jointly (50/50) a fuel storage and delivery
system technical centre.
-2-
<PAGE> 3
The location, capitalization, management and other aspects with respect to such
Technical Centre shall be determined at the time of the formation of the
Technical Centre.
SPECIFIC AMENDMENTS TO THE FIRST AGREEMENT
The following amendments are effective as of February 7, 1995. Each section
number corresponds to the section of the First Agreement.
1.3 This section is amended to read as follows:
"PURPOSE. The purpose of the JV will be to develop,
manufacture and market Fuel Delivery System (FDS) and components thereof to the
JV's Territories as described in SECTION 1.4 below. A FDS includes a fuel
pump, module, bracket and level sensor.
Except as especially provided in SECTION 4.3, the JV Group will be the
exclusive vehicle through which each of the Parties develop, manufacture, and
market FDS in the Exclusive Territory for both automotive original equipment
manufacturers and aftermarket customers."
Consistent with this new SECTION 1.3, FDS shall be substituted for TSS
throughout the First Agreement.
1.4 This Section is amended to read as follows:
"TERRITORY: The designated market of the JV (the JV
Territory) will be determined as follows:
a) Exclusive Territory: Europe (as defined in the First
Agreement), South America (as defined in the Second Agreement), and Mexico,
except that Walbro will be permitted to sell directly to aftermarket customers
in Mexico.
b) Excluded Territory: The United States, Canada and
Korea.
c) Non-Exclusive Territory: All countries not included
in the Exclusive Territory and the Excluded Territory.
The JV Group will take no actions which would cause Walbro to violate its
agreement with Mitsuba-Walbro, Inc. or Mitsuba Electric Manufacturing Company.
ARTICLE III
GOVERNANCE OF THE JV
Except for Section 3.2.4 which is hereby deleted, Article 3 of the First
Agreement remains substantially unchanged. The governance principles laid down
in Article 3 will apply to the governance of the JV Group. More specifically
the Board of Directors and the P.D.G. of JV France shall be responsible for the
management of the JV Group. Subject to local laws, only
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routine decisions shall be delegated to local managers and all special matters,
and strategic issues shall be decided upon by the Board of Directors of JV
France.
3.1 The day-to-day operation of the JV will be conducted by the
Chairman of the Board ("President Directeur General") and its staff. Unless
otherwise agreed, key management personnel of the JV will be provided by the
parties as set forth on Exhibit 3.1 (in which Deputy CEO is cancelled). Walbro
shall have the right to approve the appointment of any new P.D.G. which
approval shall not be unreasonably withheld.
3.2 The last sentence beginning "The Board" and ending "designee
of Walbro" is cancelled.
3.2.3 SPECIAL MATTERS
k) Licensing or sub-licensing to a member of the JV Group shall
not be a special matter.
l) The addition of a new member of the JV Group shall be a
special matter.
m) Liquidation or dissolution of any member of the JV Group shall
be a special matter.
The last sentence of section 3.2.3 shall be deleted and the following
substituted: "Sections 3.2.3 and 3.2.5 shall be suspended and of no force or
effect for a period of three years from the date that any party (other than
current members of management) acquires stock which constitutes greater than
50% of the total voting power of Walbro Corporation and the JV France by- laws
shall be modified accordingly. After such three year period, the
above-mentioned sections shall be reinstated and in full force and effect.
ARTICLE IV
CONDUCT OF THE JV
4.2 MANUFACTURING. The third sentence of this section which
begins "The parties acknowledge that certain products" shall be deleted. Walbro
and MM will cause JV France to expand its capabilities in design and
development and in customer application for FDS in order for JV France to
achieve greater autonomy.
JV France can sublicense the Walbro technology, the Jaeger technology
and its own technology to members of the JV Group as appropriate. As far as
Walbro technology is concerned, Walbro will receive from JV France the
stipulated royalties on worldwide sales by your members of the JV Group. JV
France will be responsible for providing to members of the JV Group support
engineering and application engineering services.
4.3 MARKETING. This section is modified to be consistent with the
modification to the definition of Territories.
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4.4 This section is deleted.
4.6 This section is deleted.
ARTICLE V
LICENSES TO/FROM THE JV
It is the intent of the Parties that the Walbro License shall be
modified and hereby amended to be consistent with the amendments and purposes
of this Agreement: for example, JV France shall be permitted to sublicense any
technology to any member of the JV Group without consent.
In addition the Parties agree that any technology developed by the JV
Group which is not subject to the grant-back provision of the Walbro License,
shall be offered for license to Walbro and MM as follows:
(1) Walbro shall have the right to an exclusive license in the
Excluded Territory for a royalty payment to be agreed upon by the Parties.
(2) Walbro and MM shall have the right to a nonexclusive license
in the Non-Exclusive Territory for a royalty payment to be agreed upon by the
Parties.
5.2 WALBRO TECHNOLOGY LICENSE. This section is modified to
provide that the Walbro License shall be exclusive in the Exclusive Territory
and nonexclusive in the Non-Exclusive Territory. The License shall only
include technology related to FDS.
5.3 FUTURE JV TECHNOLOGY. This section is modified to provide
that the JV will grant to Walbro and MM a nonexclusive license in the
Non-Exclusive Territory and to Walbro an exclusive license in the Excluded
Territory. The Licenses shall only include technology related to FDS.
5.4 SPECIAL EXTRA-TERRITORIAL LICENSE. This section is modified
to be consistent with the modification to the definition of Territory.
5.5.1 TERMINATION GENERALLY. This section is amended to provide that
the License herein granted shall be a nonexclusive license throughout the
world, except there is no license in the Excluded Territory.
The first sentence of 5.5.1 shall be modified to read as follows: If
the JV Agreement terminates for any reason, Walbro agrees to enter into a new
license agreement with MM provided the Walbro License has not been terminated
by Walbro due to a material breach by the JV thereof.
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ARTICLE VII
TERMINATION OF THE JV
7.1.1 BY MUTUAL CONSENT. Add to the end of the sentence "and subject
to such conditions as agreed between them".
7.1.2 FOR BREACH. The nonbreaching party shall also has the right to
be treated as Noninitiating party under section 7.1.4.
7.1.3 BANKRUPTCY. This section is deleted.
7.1.4 DEADLOCK. This section is deleted and the following is
substituted: 7.1.4 UNILATERAL TERMINATION. At the election of any party
pursuant to the procedures and conditions of section 7.2.
7.1.5 TERMINATION OF THE WALBRO LICENSE BY WALBRO. This section is
deleted.
7.1.6 VIOLATION OF CERTAIN PROVISIONS. This section is deleted.
7.1.7 FORCE MAJEURE. This section is deleted.
7.2 CONSEQUENCES OF TERMINATION. This section is deleted and
replaced by the following section:
7.2 PROCEDURES AND GUIDELINES FOR A UNILATERAL TERMINATION
7.2.1 PROCEDURES. For any reason, one party may give written notice
(the Initiating Party) to the other party (the Non- Initiating Party) that it
elects to cause the termination of the JV Agreement.
Within thirty days of receipt of such notice the Chief Executive
Officers of the Parties hereto will meet and use their reasonable efforts to
determine if such dissolution is in the best interest of the Parties.
If the Parties are unable to agree upon a continuation of the JV
Agreement, then they shall jointly sign a statement to such effect and the
termination of the JV Agreement and the division of the assets and liabilities
of the JV Group ("Business") shall proceed as follows.
7.2.2 GUIDELINES TO THE TERMINATION. The Business shall be divided
among the Parties in any manner and subject to any terms and conditions that
they may agree upon.
If the Parties cannot agree upon terms and conditions for a
termination within three months from the initial receipt of notice from the
Initiating Party, then the following procedures shall apply.
The Parties shall appoint an independent consultant (Consultant) which
shall be a Merchant or Investment Banker with international expertise and
knowledge in the automotive
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industry, to analyze and determine the method for division of the Business
under the guidelines prescribed below.
If the Parties are unable to agree upon the appointment of a
Consultant, each Party shall appoint its own consultant which consultant will
appoint the Consultant for purposes of this termination.
There shall be a professional appraisal of the Business utilizing
standard appraisal procedures for a transaction such as this, and the division
of the Business shall be done in a manner to as closely divide the Business in
equal value shares as possible. In the event that the two parts of the
Business are not equal in value, one Party shall pay the other the difference
in cash.
The Business shall also be divided based upon customer relations, and
to the extent possible each Party should get an equal value of potential
customers. Business attributable to any one customer shall not be divided
between the Parties. In addition, the Consultant shall give due consideration
to the likelihood that any Party is more likely to retain any specific
customer.
For a period of 12 months after the division, neither Party will sell
FDS to the other Party's customers at a loss.
With respect to the transfer of physical assets of the Business, the
Parties will cooperate with each other for a transition period, in producing
product for the customers. The transition period will last for the shorter of
(i) the time needed for one Party to construct a plant and production lines and
have customer approval of the manufacturing process or (ii) two years. During
the transition period, the Party owning the plant shall manufacture product on
a timely bases with reasonable cost sharing allocations for the other Party.
In addition to the foregoing division of the Business, the Initiating
Party shall pay to the Non-Initiating Party an amount equal to 25% of the total
appraised value of the entire Business.
The Non-Initiating Party shall have the right to require, by written
notice to be delivered not later than thirty days after the receipt of the
Consultant's plan of division, that in lieu of proceeding in such divisions,
the Initiating Party must buy out its interest in the JV Group's Business for
150% of its appraised value.
Any technology owned by the JV Group which is transferred to one Party
in the division of the Business shall be licensed, on a nonexclusive and
royalty free basis to the other Party. All parties shall have the right of
sublicense.
8. The ancillary agreements listed in Appendix B and in Appendix
D are hereby modified to be consistent with the modifications and amendments
herein contained or cancelled if not in use on the date hereof.
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement
the day and the year first above written.
<TABLE>
<S> <C>
MAGNETI MARELLI FRANCE S.A. WALBRO CORPORATION
/s/ Frederic Girardot /s/ Gary L. Vollmar
-------------------------------- -----------------------------
By: Frederic Girardot By: Gary L. Vollmar
Its: President Its: Vice President
WALBRO AUTOMOTIVE CORPORATION
/s/ Gary L. Vollmar
-----------------------------
By: Gary L. Vollmar
Its: President and COO
</TABLE>
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<PAGE> 1
EXHIBIT 10.25
JOINT VENTURE AGREEMENT
This Joint Venture Agreement (the "Agreement") is made and entered
into as of November 30, 1994, between WALBRO AUTOMOTIVE CORPORATION,
("WALBRO") a Delaware corporation located at Auburn Hills, Michigan 48326 USA,
and DAEWOO PRECISION INDUSTRIES, LTD. ("DPI"), a company incorporated under
the laws of The Republic of Korea ("Korea") located at P.O. Box 25 Kum-Jeong,
Pusan, Korea. DPI is an affiliate of Daewoo Motor Company Limited ("Daewoo"),
a company incorporated under the laws of Korea. Walbro and DPI are hereinafter
collectively referred to as "the parties".
R E C I T A L S:
A. Walbro designs and manufactures fuel delivery subsystems as
original equipment for application on automotive electronic fuel injection
systems.
B. Walbro has advanced technology with respect to automotive
electronic fuel injection system components, making particular technological
advancements in the design and manufacture of electric fuel pumps, modules,
level sensors, brackets, tubes, flanges, electric connectors and filters
(collectively "Sending Units" or "SU").
C. DPI has strong manufacturing capabilities in Korea.
D. In light of the foregoing the parties desire to utilize their
respective strengths by establishing a Joint Venture (the "JV"), to be jointly
owned by Walbro and DPI, to do applications engineering, manufacture and sell
integrated SU and their components.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and undertakings provided herein, the parties agree as follows:
ARTICLE I
FORMATION OF THE JV
1.1 INCORPORATION. As soon as possible after receipt of the
necessary governmental approvals, permits, licenses, consents and waivers
(collectively, the "Governmental Approvals"), the parties will cause the
incorporation and registration of the JV as a limited liability company
organized under the laws of Korea. The Articles of Incorporation of the JV
("Charter") shall be substantially in the form of EXHIBIT 1.1 attached hereto.
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1.2 OWNERSHIP. The equity interests in the JV will initially be
owned 51% by DPI and 49% by Walbro ("Equity Interests"). Such ownership may
subsequently be transferred to direct or indirect wholly-owned subsidiaries or
Controlled Affiliates (as defined in Article VI) of either or both parties.
1.3 PURPOSE. The purpose of the JV will be to do applications
engineering, manufacture and sell SU and component elements thereof to Daewoo,
its Controlled Affiliates and unrelated customers in the JV Territory. An SU
includes a fuel pump, module, level sensor, brackets, tubes and flanges,
connectors and filters. By mutual written agreement of the parties, the scope
of the JV may be expanded to add additional fuel system products.
1.4 TERRITORY. The designated market for the JV (the "JV
Territory") will be such geographic areas as indicated on EXHIBIT
1.4.
1.5 NAME. The parties agree that the JV shall operate under the
name Korea Automotive Fuel Systems Ltd.
1.6 REGISTERED OFFICE. The registered office of the JV shall be
at such place of business as determined by the Board of Directors.
1.7 LIMITED LIABILITY COMPANY. The JV shall be a limited
liability company [Chusik Hoesa], and the creditors of the JV shall look solely
to the assets of the JV for relief. The parties shall not bear any direct or
indirect liability for the debts or obligations of the JV other than each
party's respective obligation to pay in full the amount of its share
subscription.
ARTICLE II
CAPITALIZATION AND FUNDING OF THE JV
2.1 CAPITAL CONTRIBUTIONS. The initial capitalization of the JV
shall be 1,600 Million Won of equity which shall be contributed to the JV by
the parties in accordance with their Equity Interests. Additional
contributions shall be made as provided on page 28 of the Business Plan.
2.2 OPERATING DEFICITS . Operating deficits of the JV beyond
those provided for in the initial capitalization described above or needs for
additional working capital will be funded by outside borrowings to the maximum
extent available. If guarantees are required to secure outside borrowings, the
parties shall render such guarantees in proportion to their Equity Interests.
Such guarantees shall be several unless a bank requires the guarantees to be
joint and several, in which event each party shall have a right of contribution
from the other party. Additional operating deficits or working capital needs
which cannot be funded with outside borrowings will be funded by the parties in
proportion to their respective Equity Interest. Unless otherwise agreed at the
time of funding, such deficits will be funded by loans from the parties.
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2.3 SUBSEQUENT CAPITAL CONTRIBUTIONS. If additional capital
requirements are contemplated by the Business Plan, they will be made by the
parties in proportion to their respective Equity Interests. No additional
capital contributions other than those contemplated by the Business Plan will
be required unless approved by both parties.
2.4 PROMOTERS. DPI, Walbro and five individual promoters
designated by DPI shall serve as the promoters of the JV and one invited
individual subscriber designated by DPI shall serve as a non-promoter
subscriber of the JV as required by the Korean Commercial Code ("KCC"). Each
individual promoter designated by DPI shall be deemed a nominee shareholder of
the JV on behalf of the DPI and subscribe for one share each in order that such
promoter can sign the Articles of Incorporation for the sole purpose of forming
the JV in accordance with applicable laws. DPI shall ensure that the
individual promoters shall immediately transfer said shares to DPI on
incorporation of the JV.
ARTICLE III
GOVERNANCE OF THE JV
The parties agree that the JV will be governed substantially as set
forth below, and acknowledge that these governance provisions are for the
direct benefit of the JV and its business. The parties further agree: (a) that
the JV will be structured to reflect this governance to the fullest extent
permitted under applicable law; and (b) that, in the event of a conflict
between the Charter and the following provisions, the following provisions will
prevail to the extent such a result is not directly contrary to applicable
public policy. The parties shall cause the provisions of the Charter to be
amended from time to time as may be required to ensure that they at all times
shall conform with the terms and conditions of this Agreement and any
amendments thereto.
3.1 REPRESENTATIVE DIRECTORS. The operations of the JV will be
conducted by two Representative Directors ("RD") elected from the Board of
Directors. Walbro and DPI shall each nominate one RD which election shall be
approved by the Board. The RDs shall operate under a Joint Representative
Directors system whereby the DPI RD will make the day-to-day routine operations
decisions. The Walbro RD will always be kept informed of the activities and
consulted with important decisions on corporate actions.
3.2 BOARD OF DIRECTORS.
3.2.1 COMPOSITION. The JV will have a Board of Directors
(the "Board") comprised of four persons which shall function in accordance with
the provisions of the KCC. DPI will designate in writing two members (the "DPI
Members"), and Walbro will, designate in writing two members (the "Walbro
Members"). The parties agree to exercise their voting rights as shareholders
of the JV so as to effect the election of the persons so nominated. The Board
will elect the Chairman from among the members. The Chairman will be a
designee of DPI. The Board will also elect a Vice Chairman from among the
members, who will be a designee of Walbro. Members of the Board will serve
until replaced by the party so designating. In the event of a vacancy in the
position of any
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Director for any reason, the shareholders shall immediately elect a Director
nominated by the party which had the right to nominate the predecessor.
3.2.2 ROUTINE DECISIONS BY THE BOARD. Except as provided
in SECTION 3.2.3:
(a) each member shall be given 7 days' written notice
(with acknowledgement of receipt) of any meeting, annual or special,
of the Board;
(b) attendance in person at such a meeting, without
written objection to lack of sufficient notice, waives this notice
requirement;
(c) three members shall constitute a quorum;
(d) the vote of a majority of all members present in
person shall be decisive except that in the case of a tie vote, the
vote of the Chairman will be decisive; and
(e) whenever necessary under Korean law, decisions of the
Board shall be confirmed by a general shareholder meeting.
3.2.3 SPECIAL MATTERS. The following matters may only be
decided at the Board level and with respect to each of the following
situations, the Board will not have the power to act unless the requisite
majority voting in favor of a resolution includes at least one Walbro Member
and one DPI Member:
(a) payment of a dividend other than from current year's
earnings;
(b) approval, ratification or substantial change of the
operating budget of the JV, including without limitation, the capital
expenditures, additions or improvements for the year;
(c) approval, ratification or substantial change of the
Business Plan and the annual budget of the JV;
(d) making of political contributions;
(e) authorization or approval of a merger, consolidation
or change in the capital structure of the JV;
(f) creation or incurrence of indebtedness for borrowed
money if, after giving effect to the creation of such indebtedness,
the total amount of the JV's indebtedness for borrowed money will
exceed $250,000, except unsecured current liabilities incurred in the
ordinary course of business;
(g) giving a guarantee or creation or incurrence of any
mortgage, pledge, lien, charge or encumbrance upon any property or
assets now owned or hereinafter acquired by the JV except for (i)
mortgages, pledges, liens, charges or
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encumbrances on, and incurred at the time of and in connection with
the acquisition of property acquired in the ordinary course of
business, (ii) minor liens and encumbrances, and (iii) other liens and
encumbrances for amounts not exceeding $250,000 in the aggregate at
any one time outstanding;
(h) making, ratifying or causing the JV to become a party
to a contract or commitment, or to renew, extend or modify any
contract or commitment, including, but not limited to pricing of
product sales, between the JV and one of its equity holders, or an
"affiliate" of any of them which requires payment of an aggregate
amount in excess of $250,000. For purposes of this subsection, an
"affiliate" will mean:
(i) a company, domestic or foreign, of which an equity holder in the
JV owns or controls, directly or indirectly, at least 10% of the
assets, voting stock or capital;
(ii) a company, domestic or foreign, which owns or controls, directly
or indirectly, at least 10% of the assets, voting stock or capital
of an equity holder of the JV; or
(iii) a company, domestic or foreign, under common control with an
equity holder through direct or indirect ownership of at least 10%
of the assets, voting stock or capital of that company.
(i) material agreement or commitment to any matter required of the JV
pursuant to a contract or agreement, including Ancillary Documents, with
DPI, Walbro or an affiliate (as that term is defined in subsection (h)
above) of DPI or Walbro, including the modification or termination of any
existing contract;
(j) agreement or commitment to purchase services, from Walbro, DPI or
their affiliates (as that term is defined in subsection (h) above); and
(k) approval of the licensing or sublicensing of any SU technology.
(l) any amendment to the Charter.
(m) increase or decrease in authorized and/or issued shares of the JV;
(n) capital expenditures exceeding $250,000 which were not previously
approved in the current annual capital expenditure plan; and
(o) divestitures, including, without limitation, sale, transfer, or
other disposition by the JV of all or substantial part of its assets, with
a value exceeding $250,000.
In case of a deadlock over one or more of these issues, the provisions set
forth in SECTION 3.2.4 below will control.
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3.2.4 DEADLOCK. To facilitate the resolution of disputes, the
following sets forth the parties' agreement with respect to a deadlock
situation. In the event that:
(a) either of DPI or Walbro (in this subsection called "the First
Party") gives written notice to the other party (in this subsection called
"the Second Party") specifying as subject to this subsection a resolution
requiring the affirmative vote of a majority of the Board, including at
least one Walbro Member and one DPI Member or an approval of the
shareholders as provided in SECTION 9.3, which resolution was previously
put to and not passed by a general or special meeting of the Board or
shareholders, as applicable, because the Second Party or its designee
Members present did not vote in favor of the resolution or voted against
the resolution, or the Second Party or its designee Members were not
present for the vote; and
(b) such resolution is again put at another such meeting called within
30 days of the original meeting and the First Party or its designee Members
present, as the case may be, votes for the resolution but the Second Party
or its designee Members, as the case may be, does not vote in favor of or
votes against the resolution, or the Second Party or its designee Members,
as the case may be, are not present for the vote, then a deadlock situation
will be deemed to have arisen. Within seven days of such event arising,
Walbro and DPI will prepare and circulate to the other a memorandum or
other form of statement setting out its position on the matter in dispute
and its reasons for adopting such position. Each such memorandum or
statement will be considered by the Chief Executive Officers of DPI and of
Walbro who will respectively use their reasonable efforts to resolve such
dispute.
If the parties agree upon a resolution of the dispute, they will jointly
sign a statement setting forth the terms of such resolution and Walbro and DPI
will exercise all voting rights and other powers of control available to them
in relation to the JV to procure that such resolution is fully and promptly
carried into effect.
If a resolution of the dispute is not agreed upon within 30 days after
delivery of the memorandum or statements mentioned above or such longer period
as Walbro and DPI may agree in writing, the JV will automatically terminate as
prescribed in ARTICLE VII.
If a resolution is agreed upon by the parties but is not implemented by the
JV within 60 days after such agreement, or such longer period as Walbro and DPI
may agree in writing, the JV will automatically terminate as prescribed in
ARTICLE VII.
3.3 OFFICERS. DPI shall designate the President and Walbro shall designate
the Executive Vice President. The President shall appoint the balance of the
organizational staff after consulting with the Executive Vice President. The
organizational staff shall report to the President. The Executive Vice
President shall be kept informed of operational matters on a day-to-day basis
by the organizational staff.
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ARTICLE IV
CONDUCT OF THE JV
4.1 BUSINESS PLAN. The five-year business plan (the "Business Plan")
attached as EXHIBIT 4.1 will be approved by the Board in accordance with
SECTION 3.2.3 and will be implemented by the management of the JV. The
Business Plan includes initial and subsequent funding requirements. The
Business Plan will be revised, updated and approved on an annual basis by the
Board in accordance with SECTION 3.2.3.
4.2 MANUFACTURING. Components to be incorporated into the SU products will
be selected based on "best in class" for quality, performance and cost. Walbro
will start the JV with customer application engineering and manufacturing
technology with substantial support from Walbro under the Engineering Support
Agreement attached as EXHIBIT 4.2. The parties acknowledge that initially,
fuel pumps will be manufactured by Walbro and sold to the JV at full absorption
cost ("FAC") plus 5%. FAC includes materials, labor, overhead plus allocations
of selling, administrative, general and research and development overhead. The
parties further agree that the sales price for any components sold by Walbro to
the JV shall be acquisition cost if purchased from a third party or FAC if
manufactured by Walbro plus tooling amortization, procurement expenses
(generally 8-13% of cost), plus 9%. Walbro also encourages the JV to purchase
components directly from Walbro's recommended suppliers at Walbro's acquisition
cost plus tooling, if necessary. Common tooling will be paid for by Walbro and
the JV will reimburse Walbro for tooling cost based on the JV's pro rata tool
use plus 10%. Walbro will be kept informed of the JV's purchasing activity to
insure proper volume allocation. The parties agree to utilize the Recommended
Localization Plan (attached as EXHIBIT 4.2A) for this purpose. As soon as
feasible, such manufacturing shall be done by the JV. Walbro further agrees to
use its best efforts to perform all acts necessary for the acquisition by the
JV of the necessary imported machinery, equipment, components and raw materials
at arm's length fair market value and on the most favorable terms and
conditions acceptable to the JV until such time that these machinery,
equipment, components and raw materials are available from domestic sources.
4.3 MARKETING. The JV will be responsible for the sale of all SU products
to its customers in the JV Territory. The JV will begin sales to customers in
1995. Prior to such time the parties may sell SU to customers in the JV
Territory. With respect to the JV Territory, the JV will have the exclusive
right to sell SU in Korea. With respect to all other countries in the JV
Territory, such rights shall be non-exclusive.
4.4 ENGINEERING SUPPORT FROM WALBRO. Walbro will provide engineering
services to the JV as provided in the Engineering Support Agreement.
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ARTICLE V
LICENSES
5.1 MASTER TECHNOLOGY LICENSE AGREEMENT. Walbro will provide its SU
technology to the JV via a license (the "Walbro License") granted under the
Master Technology Agreement attached as EXHIBIT 5.1.
5.2 CONSEQUENCES OF JV TERMINATION ON WALBRO LICENSE. If the JV terminates
for any reason, the Walbro License shall simultaneously terminate.
5.3 COOPERATION. The parties hereto will use their best efforts, in all
relevant capacities, to cause the JV to perform all its obligations under the
Walbro License.
ARTICLE VI
RESTRICTIONS ON TRANSFER OF INTERESTS IN THE JV
Neither Walbro nor DPI may transfer any of its Equity Interests in the JV
to any third party (other than Controlled Affiliates) without the prior written
approval of the other party. It is the intention of the parties that there be
only two equity holders in the JV; consequently, any attempted transfer of
Equity Interests in the JV must encompass the entire Equity Interest of the
transferring party. A designated transferee (whether or not a Controlled
Affiliate) shall issue a written undertaking to the non-transferring party
hereto and the JV agreeing to be bound by all provisions of this Agreement as
if it had executed this Agreement in lieu of the transferring party and assume
all of the transferring party's duties, obligations and liabilities under this
Agreement, the Articles of Incorporation and the Ancillary Documents as defined
in Section 13.1. Any transfer shall be subject to the approval of the Korean
Government, if necessary, and shall not become effective until such approval
has been obtained.
For purposes of this Agreement, a "Controlled Affiliate" of a party means
any person which directly or indirectly controls, is controlled by or is under
common control with, such party; "control" means the ownership of a majority of
both the voting power of, and the equity interests in, a person.
ARTICLE VII
TERMINATION OF THE JV
7.1 TERM AND TERMINATION OF THE JV. Unless otherwise terminated as
provided below, the JV will be of perpetual duration. The JV will be
terminated:
7.1.1 BY MUTUAL CONSENT. At any time by the mutual consent of the
parties;
7.1.2 FOR BREACH. Upon the material breach, including a
non-permitted transfer in violation of Article VI, which is not cured within 90
days after notice thereof, by a party of its obligations to the JV or otherwise
under this Agreement, at the option of the
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non-breaching party exercised within 10 days after the expiration of the 90-day
cure period;
7.1.3 BANKRUPTCY. Automatically upon the filing of a voluntary
petition or answer admitting jurisdiction of the court and the material
allegations, or the consent to, an involuntary petition pursuant to or
purporting to be pursuant to any reorganization or insolvency law of any
jurisdiction, or an assignment for the benefit of creditors, or an application
for or consent to the appointment of a receiver or trustee of a substantial
part of the property of a party hereto;
7.1.4 DEADLOCK. Upon an unresolved deadlock as described in
SECTION 3.2.4;
7.1.5 TERMINATION OF WALBRO LICENSE BY WALBRO. At the option of
Walbro, immediately upon the termination of the Walbro License pursuant to
Section 9.02 of the Master Technology License Agreement;
7.1.6 VIOLATION OF CERTAIN PROVISIONS. Upon the failure or refusal
of a party or its designees to comply with the governance provisions set forth
in SECTION 3.2.3 or to comply with the capitalization obligations under ARTICLE
II, the non-offending party may terminate this Agreement, at its option and
without prejudice to any of its other legal and equitable rights and remedies,
by giving not less than 60 days' prior written notice. This clause shall
survive any judicial determination that the restrictions set forth in SECTION
3.2.3 or the requirements set forth in ARTICLE II are unenforceable or void.
7.1.7 FORCE MAJEURE. At the option of the non-offending party, upon
the failure of a party to begin fully performing its obligations under this
Agreement within six months after such party declares an inability to perform
due to force majeure as provided in SECTION 13.5;
7.1.8 EXPROPRIATION. Upon the expropriation of a substantial
portion of the JV's property; or
7.1.9 NO GOVERNMENT APPROVALS. At the option of either party, upon
the failure to obtain any required governmental approvals within six months
from the execution of this Agreement.
7.2 CONSEQUENCES OF TERMINATION.
7.2.1 PURCHASE OPTION. Upon termination of the JV pursuant to
SECTION 7.1 above, either party will have the option, in lieu of proceeding
with the dissolution of the JV, to purchase the other party's Equity Interest
by giving notice within 30 days after the termination of the JV to the other
party that it desires to purchase for cash all of the Equity Interest of the
other party at a stated price.
If within the 30-day period only one party gives notice that it wishes to
purchase the other party's Equity Interest, then the other party may either
accept such offer, or give
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<PAGE> 10
notice within 20 days of the offer that the price will be equal to the fair
market value of the Equity Interest as determined by an investment banker with
recognized standing in the international finance community and mutually
acceptable to the parties. In the event the parties cannot agree on an
investment banker, each party will select one banker and the two bankers will
select a third banker, which third banker will conclusively determine fair
market value. For purposes of this section, "fair market value" of an Equity
Interest will be the value of the JV as if it were being sold as a whole
business and a going concern to one purchaser, multiplied by the selling
party's equity percentage at the time of the valuation.
If within the 30-day period both parties give notice that they wish to
purchase the other party's Equity Interest, then the party whose notice
contains the highest stated per share price will purchase the other party's
Equity Interest at that price for cash, or as otherwise mutually agreed to by
the parties.
Notwithstanding anything to the contrary, this purchase option will not be
available to a party whose breach, bankruptcy, insolvency, or liquidation has
given rise to the termination of the JV pursuant to SECTION 7.1.2, SECTION
7.1.3, SECTION 7.1.5 or SECTION 7.1.6.
7.2.2 DISSOLUTION. If the above purchase option is not exercised by
either party, the parties will use their best efforts to dissolve the JV and
wind up its affairs in a manner designed to preserve and maximize the economic
interests of both parties.
7.2.3 DAMAGES. Nothing herein shall prejudice the rights of a party, in
addition to the exercise of any other remedy hereunder, to recover money
damages for any breach by a party of this Agreement or any Ancillary Document.
Upon termination of this Agreement, neither party shall be discharged from any
antecedent obligations or liabilities to the other party or the JV hereunder
unless agreed otherwise in writing.
ARTICLE VIII
REGULATORY MATTERS AND INVALIDITY
8.1 COOPERATION IN MAKING REGISTRATIONS. The parties shall cooperate fully
in making, whenever required or necessary, registrations under Korean law with
respect to agreements for the transfer of technology and rendering of technical
assistance.
8.2 CONSEQUENCES OF INVALIDITY. If for any reason whatever at any time,
any provision of this Agreement or any of the Ancillary Documents is or becomes
invalid, illegal or unenforceable, or is declared by any court of competent
jurisdiction or any other competent authority to be invalid, illegal or
unenforceable (each of which circumstances being referred to in this ARTICLE
VIII as "a Relevant Invalidity") or if such competent authority:
(i) refuses, or formally indicates an intention to refuse authorization of,
or exemption to, any of the provisions of or arrangements contained in
this Agreement or in any of the Ancillary Documents (in the case of a
refusal either by way of outright refusal or by way of requiring an
amendment or deletion of any provision of this
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<PAGE> 11
Agreement or of any of the Ancillary Documents and/or the inclusion of
any new provision in this Agreement or in the Ancillary Documents
and/or the giving of undertakings as to future conduct before such
authorization or exemption can be granted); or
(ii) formally indicates that to continue to operate any provision of this
Agreement or of any of the Ancillary Documents may expose the parties
to sanctions under any order, enactment or regulation, or requests any
party to give undertakings as to future conduct in order that such
party may not be subject to such sanctions; and in all cases, whether
initially or at the end of any earlier period or periods of exemption,
then in any such case, at the request of either party by notice or a
series of notices to that effect to the other ("Negotiation Notice"),
the parties will meet to negotiate in good faith to agree upon valid,
binding and enforceable substitute provisions while at the same time
reconsidering the other terms of this Agreement and of any of the
Ancillary Documents not so affected so as to reestablish an appropriate
balance of the commercial interests of the parties ("Substitute
Provisions").
8.3 FAILURE TO AGREE ON SUBSTITUTE PROVISIONS. If and to the extent that
Substitute Provisions are formally agreed in writing within one month of the
service of a Negotiation Notice, or such other period as may be formally agreed
in writing between the parties, then in that respect the matter shall be deemed
to be settled and such substitute provisions shall be deemed part of this
Agreement or of any of the Ancillary Documents. If, however, in respect of any
Relevant Invalidity no Substitute Provisions can be agreed within such period,
then if any party considers on reasonable grounds that its commercial interests
with regard to this Agreement and/or any of the Ancillary Documents is
materially and adversely affected as a consequence of the Relevant Invalidity
it may submit such matter to arbitration pursuant to SECTION 13.8.
8.4 DEFERRAL OF DETERMINATION OF ADVERSE EFFECT. If any party considers
that it is unable to assess the consequence of any Relevant Invalidity in the
light of facts subsisting at the time, that party may defer commencement of an
arbitration in respect of the provision or provisions affected by such Relevant
Invalidity until such time as it considers on reasonable grounds that its
commercial interests with regard to this Agreement and/or any of the Ancillary
Documents are materially and adversely affected in the light of events
occurring subsequent to communication of the finding of invalidity to the
parties. Notwithstanding the foregoing, a party must commence arbitration
pursuant to SECTION 8.3 within 60 days of receipt of the Negotiation Notice.
ARTICLE IX
GENERAL MEETING OF SHAREHOLDERS
9.1 GENERAL. The JV shall hold an ordinary General Meeting of
Shareholders within three months after the end of each fiscal year, and may
convene at any time an extraordinary General Meeting of Shareholders in
compliance with the resolutions of the Board of Directors and Korean laws;
provided that the first ordinary General Meeting of
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<PAGE> 12
Shareholders shall be held without delay after the shares to be issued at the
time of establishment of the JV are fully paid and subscribed for hereunder.
9.2 TIME, PLACE, QUORUM. The date, time, place and agenda for a General
Meeting of Shareholders shall be determined by the Board of Directors. Notices
for a General Meeting of Shareholders shall be sent to the shareholders and
other persons entitled to receive notice by the chairman of Board of Directors
not later than 30 days before the relevant General Meeting.
A quorum at all General Meetings of Shareholders shall be the presence
of shareholders representing at least 52% of the total number of issued and
outstanding shares entitled to vote thereon. A shareholder shall be entitled
one vote for each share of the JV he owns. All resolutions shall be passed by
the affirmative vote of at least 52% of the total issued and outstanding shares
entitled to vote are present or represented by proxy, except where a greater
majority is required by subsection 9.3 below, by the Articles of Incorporation
or by law.
9.3 MATTERS. The following matters shall be determined by the
affirmative vote of shareholders representing not less than two thirds of the
total issued and outstanding shares entitled to vote are present or represented
by proxy:
(i) Amendment of Articles of Incorporation
(ii) Increase or decrease in authorized and/or paid in capital
of the JV;
(iii) Dissolution, reorganization or merger of the JV;
(iv) Sale or transfer of all or substantial portion of assets
and property of the JV; and
(v) Dismissal of a Director or the Auditor of the JV.
9.4 RECORDING. The substance of the proceedings at a General Meeting of
Shareholders and the results thereof shall be recorded in English.
ARTICLE X
AUDITOR
The JV shall have two statutory auditors one of whom shall be nominated
by DPI and one of whom shall be nominated by Walbro. They shall be elected at
the General Meeting of the Shareholders.
ARTICLE XI
ACCOUNTING
The fiscal year of the JV shall be the calendar year.
The JV shall keep true and accurate accounting records of all
operations in Korean currency units in accordance with generally accepted
accounting principles, and such
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<PAGE> 13
records shall be open to inspection by the parties hereto or by their duly
authorized representatives at all reasonable times.
The JV's financial books shall be audited annually at the expense of
the JV by an internationally recognized firm or association of certified public
accountants. The financial statements for the JV shall be prepared promptly
following each fiscal year of the JV and copies of all such financial
statements shall be provided promptly to each shareholder and Director of the
JV.
ARTICLE XII
REPRESENTATIONS AND WARRANTIES
Each party hereby warrants and represents to the other party and to the
JV that the following warranties and representations are true as of the date
hereof (except for matters disclosed in writing prior to such date) and will be
true (without exception) on the date the parties first subscribe for the shares
of the JV:
(i) It is a corporation duly organized and validly existing under the
laws of the jurisdiction of incorporation, and it has all
requisite legal and corporate power and authority to own and
operate its properties and to carry on its business;
(ii) Its execution, delivery and performance of this Agreement has been
duly authorized by all requisite corporate action, and this
Agreement constitutes the valid, legal and binding obligation of
such party, enforceable in accordance with the terms hereof; and
(iii) It does not have any outstanding commitments or obligations,
contractual or otherwise, which would in any way conflict with or
impede its ability and right to enter into this Agreement and
fulfill its duties and obligations hereunder;
Each party shall indemnify and hold harmless the other party and the JV
from and against any and all liabilities (direct or indirect), losses, costs,
damages, claims, commissions and expenses (including attorneys' fees and other
legal fees) which the other party or the JV may sustain by reason of a material
breach of, or material inaccuracy with respect to, any representation or
warranty made by such party herein or pursuant hereto.
ARTICLE XIII
MISCELLANEOUS PROVISIONS
13.1 ANCILLARY DOCUMENTS; INTERPRETATION. The parties acknowledge and
agree that, in the event of an inconsistency or disagreement between this
Agreement, on the one hand, and the Master Technology License Agreement,
Charter, Engineering Support Agreement and any other agreement or document
referred to herein to be entered into in connection with the JV (each an
"Ancillary Document" and, collectively, the "Ancillary Documents"), this
Agreement shall prevail.
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<PAGE> 14
13.2 PUBLIC ANNOUNCEMENTS AND CONFIDENTIALITY. The parties agree that
all data and information relating to the JV, including but not limited to any
information relating to or provided under any Ancillary Document, the JV's
trade secrets, know-how, inventions, discoveries, improvements, technologies,
business practices and methods, whether or not patented, lists of suppliers,
and information relating to the JV's financial statements, customer identities
and utilization patterns, needs and participation levels, potential customers,
suppliers, products, servicing methods, equipment, programs, analyses, profit
margins and cost data, shall be kept confidential by both parties and shall
not, whether prior to or after the date hereof, be disclosed to any person,
firm, or corporation, except to the extent that such data or information is
generally known to the trade or in the public domain. The parties, however,
may provide the information to third parties (i) for the purpose of assisting
in the evaluation of the JV, its performance, or its operations, (ii) for the
purpose of determining the value of said party's equity interest in the JV,
(iii) with the written consent of the other party to the JV and (iv) for any
other purpose consistent with the activities contemplated by this Agreement and
the Ancillary Documents; provided that in each case the disclosing party takes
reasonable precautions to maintain the confidential nature of the information.
The parties may also make any disclosures necessary to comply with applicable
securities and other disclosure laws. The parties recognize and acknowledge
that any breach by them of the foregoing provisions of this section may cause
irreparable harm to the other party and the JV and, in the event of any such
breach, such other party or the JV shall, in addition to all other remedies
available to it, at law or in equity, be entitled, if it so elects, to
institute and prosecute proceedings in any court of competent jurisdiction to
enjoin such breaching party from doing any act in violation of such provisions,
and that such other party or the JV shall not be required to show actual
monetary damages as a prerequisite to such relief. The above provisions shall
survive any termination of this Agreement and any dissolution of the JV for a
period of five years after such termination or dissolution.
Each party agrees not to make any public disclosure regarding the existence
or the substance of the transactions contemplated hereby without the prior
approval of the other party, except to the extent that either party reasonably
determines that such disclosure is required by applicable law or regulation.
13.3 EFFECTIVENESS. The effective date of this Agreement shall be the
date on which the later of the following events occurs: (i) the execution of
this Agreement by the parties hereto, (ii) November 30, 1994 or (iii) the
issuance of the necessary Governmental Approvals in form satisfactory to both
parties hereto.
13.4 INSURANCE. Insurance protection provided for the JV under this
Agreement must apply both to each individual installation of the JV and to all
installations as a whole. The JV's insurance must also provide insurance
coverage for all types of risk related to the construction and operation of the
aforementioned installations, including material and other property losses
caused to fixed assets belonging to the JV, rented by it, or acquired on credit
by it, as well as its civil liability for property or physical damage which may
be caused to third parties in connection with the JV's activity, either by
defects in the goods its produces or by JV workers and employees in connection
with their performance of their job responsibilities.
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<PAGE> 15
13.5 FORCE MAJEURE. Where either party is unable, wholly or in part,
by reason of force majeure to carry out its obligations under this Agreement,
such obligations are suspended so far as they are affected by the force majeure
during the continuance thereof; provided that an obligation to pay money is
never excused by force majeure.
The party affected by the force majeure will give notice to the other party
of the particulars of the situation and the probable extent to which it will be
unable to, or delayed in, performing its obligations under this Agreement,
within 10 days after the occurrence of the force majeure.
For purposes of this section, "force majeure" means an act of God, strike,
lockout or other interference with work, war declared or undeclared, blockade,
lightning, fire, earthquake, storm, flood or explosion; governmental or
quasi-governmental restraint action, expropriation, prohibition, intervention,
direction or embargo; unavailability or delay in availability of equipment or
transport; inability or delay in obtaining governmental or quasi-governmental
approvals, consents, permits, licenses, authorities or allocations; and any
other cause whether of the kind specifically enumerated above, or otherwise
which is not reasonably within the control of the party affected.
13.6 EXPENSES. Walbro and DPI will each pay its own costs and expenses
incurred in the negotiation and drafting of this Agreement and the Ancillary
Documents.
13.7 FURTHER ASSURANCES. Walbro and DPI agree to execute and deliver
such other instruments, agreements or documents and take such other action as
may reasonably be necessary or desirable to consummate the transactions
contemplated by this Agreement.
13.8 RESOLUTION OF DISPUTES - ARBITRATION. Any dispute, controversy or
claim ("Dispute") arising out of or relating to this Agreement or any Ancillary
Document, including, without limitation, the breach, termination or invalidity
thereof, shall be settled pursuant to this section.
(a) Any Dispute shall before commencement of any arbitration procedure, be
put before the Chairman of Walbro and the President of DPI for an
amicable solution. If such a solution cannot be achieved within 15
days of written notice of such Dispute by either party to the other
party then arbitration shall commence pursuant to this section.
(b) The arbitration shall be conducted in Paris, France in accordance with
the Rules of Arbitration and Conciliation of the International Chamber
of Commerce then in effect.
(c) Each party shall appoint one arbitrator within 15 days after receipt of
a demand for arbitration. The two arbitrators thus appointed shall,
within 30 days after both shall have been appointed, appoint a third
arbitrator, who shall not be a national of Korea nor of the U.S.A. and
who shall preside over the arbitration proceedings. If any appointment
required herein shall not be made within the
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<PAGE> 16
prescribed time, then such appointment may be made by the President of
the International Chamber of Commerce.
(d) The proceedings shall be conducted in English, and all arbitrators
shall be conversant in and have a thorough command of the English
language.
(e) Both parties shall be bound by the award rendered by the arbitrators
and judgment thereon may be entered in any court of competent
jurisdiction.
(f) Notwithstanding any other provision of this Agreement, either
party shall be entitled to seek preliminary injunctive relief from
any court of competent jurisdiction pending the final decision or
award of the arbitrators.
13.9 SUCCESSORS AND ASSIGNS. This Agreement will be binding upon and
inure to the benefit of the parties and their respective successors and
permitted assigns, but will not be assignable or delegable by any party without
the prior written consent of the other party, except that either party may
assign, in whole or in part, its rights hereunder, subject to all obligations
hereunder, to a Controlled Affiliate in connection with any transfer of Equity
Interests in the JV permitted pursuant to ARTICLE VI; provided, however, that
such assignment will not relieve that party of any of its obligations or
liabilities hereunder.
13.10 AMENDMENTS, SUPPLEMENTS, ETC. This Agreement may be amended or
supplemented at any time by additional written agreements signed by both
parties, as may mutually be determined by the parties to be necessary,
desirable or expedient to further the purposes of this Agreement or to clarify
the intention of the parties.
13.11 NOTICES. All notices and other communications required or
permitted hereunder will be in writing and, unless otherwise provided in this
Agreement, will be deemed to have been duly given when delivered in person or
one business day after having been dispatched by telegram or electronic
facsimile transfer (confirmed in writing by mail simultaneously dispatched with
a copy of the sender's machine printed facsimile confirmation) or three
business days after having been dispatched by an internationally recognized
overnight courier service to the appropriate party at the address specified
below.
(a) If to Walbro, to:
Walbro Automotive Corporation
1227 Centre Road
P.O. Box 215257
Auburn Hills, MI 48326
Facsimile Number: (313) 377-1660
Attention: President; Director of International Operations
With a copy to:
Katten Muchin & Zavis
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<PAGE> 17
525 W. Monroe Street, Suite 1600
Chicago, Illinois 60661-3693
Facsimile Number: (312) 902-1061
Attention: Arnold S. Harrison
(b) If to DPI, to:
Daewoo Precision Industries, Ltd.
P.O. Box 25 Kum-Jeong
Pusan, Korea
Facsimile Number: 82-51-508-3339
With a copy to:
President
13.12 WAIVER. Waiver by either party of a breach by the other party of
any obligation or requirement contained in, or arising from, this Agreement
does not operate as a waiver of another or continuing breach by the other party
of the same, or any other, obligation or requirement hereunder. Any waiver by
either party must be in writing, signed by the waiving party.
13.13 DISCLAIMER OF AGENCY. This Agreement does not constitute either
party as the legal representative or agent of the other party for any purpose
whatsoever. Neither party shall have any right or authority to assume, create
or incur any liability or obligation of any kind, express or implied, against,
in the name of or on behalf of the other party except in accordance with this
Agreement or as may otherwise be agreed in writing by the parties.
13.14 SEVERABILITY. Subject to the provisions of ARTICLE VIII, if any
provision of this Agreement or the application of any such provision to any
person or circumstance is held invalid, illegal or unenforceable in any respect
by a court of competent jurisdiction, such invalidity, illegality or
unenforceability will not affect any other provision hereof.
13.15 GOVERNING LAW. This Agreement will be governed by and construed
in accordance with the laws of Korea.
13.16 THIRD PARTIES. Nothing in this Agreement express or implied is
intended to confer any right or remedy under or by reason of this Agreement on
any person other than the parties, their respective heirs, representatives,
successors and permitted assigns, nor to affect or discharge the obligation or
liability of any third persons to any party to this Agreement, or give any
third party any right or subrogation or action over against any party to this
Agreement.
13.17 TITLES AND HEADINGS. Titles and headings to sections herein are
inserted for convenience of reference only, and are not intended to be a part
of or to affect the meaning or interpretation of this Agreement.
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13.18 EXECUTION IN COUNTERPARTS. This Agreement may be executed in two
or more counterparts, each of which will be deemed an original, but all of
which together will constitute one and the same agreement.
13.19 SURVIVAL. The covenants and agreements made in SECTIONS 7.2,
13.2, 13.4, 13.6 and 13.13 will survive any termination of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day
and year first above written.
WALBRO AUTOMOTIVE CORPORATION
By: LAMBERT E. ALTHAVER
Sharon M. Reyerk Its: CHAIRMAN
SHARON M. REYERK
Notary Public, Oakland County, MI
My Commission Expires Jan. 21, 1997
DAEWOO PRECISION INDUSTRIES, LTD.
By: OH-JOON KWON
Its: PRESIDENT
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Walbro Corporation & Subsidiaries EXHIBIT 13.1
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years Ended December 31
(In Thousands, Except Per Share Data)
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
From Continuing Operations:
Sales........................................ $325,205 $273,463 $241,416 $200,130 $166,678
Cost of Sales................................ 261,501 216,804 185,712 158,743 134,295
Income Before Cumulative
Effect of Accounting Change............... 14,595 12,567 12,526 4,838 1,217
Income Per Share Before
Cumulative Effect of Accounting
Change (fully diluted).................... 1.70 1.47 1.58 0.96 0.28
Cash Dividends Per Share..................... 0.40 0.40 0.40 0.10 0.40
Working Capital.............................. 58,378 50,187 43,742 25,760 35,348
Total Assets................................. 257,366 215,295 193,020 161,243 143,026
Long-Term Debt............................... 66,136 52,392 49,638 62,777 83,443
Redeemable Preferred Stock................... 0 0 0 7,500 5,000
Stockholders' Equity......................... 127,915 114,146 99,910 50,339 27,424
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS 1994 COMPARED TO 1993, 1993 COMPARED TO 1992
SALES. The Company reported record sales again in 1994 of $325.2
million, an increase of 18.9%. The 1994 sales increase represents the 12th
consecutive year of sales increases. Sales in 1993 were $273.5 million
compared to sales of $241.4 million in 1992. The $51.7 million of additional
sales in 1994 was divided between the automotive market with $31.1 million of
the increase, the small engine market with $14.4 million of the increase and a
$6.2 million increase from aftermarket sales. On a percentage basis,
automotive market sales increased 18.6% in 1994 compared to a 9.8% increase in
1993, while sales in the small engine market increased 16.5% in 1994 compared
to a 21.3% increase in 1993. Aftermarket sales increased 32.8% in 1994
compared to an increase of 11.2% in 1993.
Sales of the Company's original equipment automotive products hit a
record level of $198.3 million in 1994, up from $167.2 million in 1993 and
$152.3 million in 1992. The U.S. light vehicle market grew by 1.2 million
units in 1994 to reach 15.1 million vehicles, an 8.4% increase. U.S. light
vehicle sales increased by 8.0% in 1993 and by 4.5% in 1992. In 1994, the
Company was able to increase automotive product sales by 18.6% while the U.S.
light vehicle market grew by 8.4% and the total big three domestic sales
increased by 7.4%. Automotive product sales benefited from the overall market
growth, from increased penetration of existing products and from the
development of new products for new models in 1994. In addition, the Company
sold its first multi-layer plastic fuel tanks in 1994. For 1994, fuel pumps
reported a modest sales increase while fuel rail sales increased by 22.3% and
fuel module (in-tank reservoir with fuel pump assembled) sales increased by
32.2%. The Company expects the growth in sales of fuel modules to continue as
more new models are using them. Fuel modules have also gained acceptance in
the European and the South American markets. The Company currently produces
primarily steel fuel rails. In the future, the Company expects continued
growth in sales of steel fuel rails and growth in the newer composite plastic
fuel rails which the Company also produces.
Although the U.S. light vehicle market grew significantly in 1993, the
Company's sales growth in 1993 was the result of many dynamic forces in the
marketplace, some positive and some negative. Sales by one major domestic
customer grew by 19.5% in 1993, resulting in increased demand for the Company's
products for existing platforms, and new models introduced during the year.
Another major domestic customer chose to restrict the growth of its purchases
of one of the Company's products because of increased in-house production. In
1993, fuel pumps and fuel rails reported modest sales increases, while fuel
module sales increased by 26.2%. Sales to the Company's unconsolidated joint
venture in Europe, Marwal Systems, declined by $4.1 million in 1993 because the
joint venture increased its own internal production of components formerly
supplied by the Company to the European automotive market. Sales to the
Company's joint venture in Brazil, Marwal do Brazil (new in 1993), helped to
partially offset some of the decline in U.S. sales to Europe.
Automotive product sales in 1992 increased by 18.6% in a market which
grew by 4.5%, but the Company's two major domestic customers increased their
own sales by an average of 12% during the year. In addition, automotive
product sales were helped by a positive change in the
10
<PAGE> 2
Walbro Corporation & Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
product mix, the introduction of new applications for all customers and
increased sales to the Company's unconsolidated European joint venture.
Sales of the Company's small engine products also hit a record level of
$101.8 million in 1994, up from $87.4 million in 1993 and $72.1 million in
1992. Overall sales growth of small engine products was 16.5% in 1994 compared
to 21.3% during 1993. Sales of diaphragm carburetors increased 7.4% in 1994
compared to 24.3% for 1993, from $46.9 million in 1992 to $58.3 million in 1993
to $62.6 million in 1994. U.S. diaphragm carburetor sales declined in the
second half of 1994 and were adversely affected by customer order delays
related to delays in the Company's customers' engine certifications by the
California Air Resources Board. U.S. sales increases in the first half of 1994
combined with increases in Europe and the Far East during all of 1994 more than
offset the second half decline in the U.S. Sales growth in 1992 and 1993 for
diaphragm carburetors was the result of increased worldwide market penetration
for the Company's products resulting in part from one of the Company's major
competitors being adversely affected by the strong Yen in such years.
Sales of float feed carburetors increased 27.7% in 1994 compared to a
7.8% increase for 1993, with $30.0 million of sales in 1994 versus $23.5
million in 1993 and $21.8 million in 1992. In 1994, float feed carburetor
sales increased to most customers with a 36% increase to the Company's largest
lawn and garden customer and a 36% increase in sales of marine carburetors.
In 1993, sales of float feed carburetors were flat to the Company's two largest
customers compared to 1992.
Sales of small engine ignition systems added $7.1 million to small
engine sales in 1994 compared to $5.1 million in 1993 and $2.4 million in 1992
as customer demand has grown for this expanding family of products, new to the
Company since 1992. In addition, sales from the Company's new subsidiary in
China, Fujian Hualong Carburetor, added $1.9 million to small engine sales in
1994.
Management believes that ignition systems will play a more significant
role in the future as small engines become subject to more stringent emissions
regulations. In the past, environmental regulations have created growth
opportunities for the Company through new product development. For example,
the Company has developed a new generation carburetor to meet the first phase
of the California exhaust emission standards originally scheduled to take
effect in January, 1995. In addition, the U.S. Environmental Protection Agency
has adopted similar emission standards which become effective in August, 1996,
but management believes that these 1995 and 1996 emission standards will not
adversely affect its business.
A more stringent second phase of regulation is scheduled to take effect
in 1999, which could significantly affect unit sales of existing products due
to a shifting of the low cost segment of the portable power equipment market
from internal combustion engines to electric motors. The 1999 regulations will
require new levels of technology within tight cost constraints required by the
small engine market. However, the Company has the capability to assist engine
manufacturers by designing and producing ignition systems and fuel systems
capable of meeting reasonable emission standards. Although certain of these
regulations may have the effect of reducing unit sales, the more sophisticated
products required by stringent emissions regulations are expected to command
higher unit prices.
Since 1991, the Company's aftermarket business for both automotive
products and carburetors has been consolidated as a business unit within Walbro
Engine Management Corporation, but reported separately in this discussion.
Aftermarket sales have grown at an increasingly higher rate with sales of $17.0
million in 1992, $18.9 million in 1993 and $25.1 million in 1994. Each year,
aftermarket sales have represented approximately 7-8% of total Company sales.
The 33% increase in 1994 sales was the result of the addition of several new
aftermarket customers and the expansion of the product offering for aftermarket
sales.
COST OF SALES. The Company's cost of sales is composed primarily of
material, labor, and manufacturing and engineering overhead. Cost of sales
was $261.5 million in 1994 compared to $216.8 million in 1993 and $185.7
million in 1992. Cost of sales as a percent of sales was 80.4% in 1994 compared
to 79.3% in 1993 and 76.9% in 1992. In 1991, the Company reorganized its
business into two operating units: Walbro Automotive Corporation (WAC) and
Walbro Engine Management Corporation (WEMC). The reorganization was designed
to foster decentralized decision-making, improved focus, accountability and to
empower managers to adopt programs responsive to their respective industries.
The cost of sales as a percent of sales in 1992 demonstrated the results of
those efforts.
In 1993, cost of sales as a percent of sales at WEMC continued the
favorable trend downward. However, at WAC, percentage cost of sales increased
resulting in an overall increase in the percentage for the Company. The
increased cost of sales at WAC resulted primarily from the Company's decision
to enter the multi-layer plastic fuel tank business by building a new
manufacturing facility in Ossian, Indiana, and its decision to consolidate two
small fuel rail manufacturing
11
<PAGE> 3
Walbro Corporation & Subsidiaries
MANAGEMENT'S AND DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
plants into one larger facility in Ligonier, Indiana. The plastic fuel tank is
a critical element of the Company's long term strategy of supplying fuel
storage and delivery systems to the automotive market. However, the short term
effect of building this facility was to increase cost of sales in 1993 without
any significant sales. Start-up expenses associated with the fuel rail plant
consolidation caused higher cost of sales for that year. Cost of sales at WAC
was also adversely impacted by customer recall expenses, some of which resulted
from the start-up at the Ligonier facility.
Cost of sales as a percent of sales increased at both WAC and WEMC in
1994. The WAC increase resulted from continuing startup costs at the Company's
Ossian, Indiana plant, slightly less than break-even results at the Company's
Ligonier, Indiana plant and additional costs of expanding production capacity
at the Company's Meriden, Connecticut plant. The startup costs at the
Company's Ossian, Indiana plant are expected to continue at least through 1995
as the production orders for multi-layer plastic fuel tanks have not reached
the break-even level. The additional costs of expanding production at the
Company's Meriden, Connecticut plant are expected to decline in 1995 as new
capacity comes on line and sales volumes expand. The WEMC increase was
primarily the result of the decline in U.S. diaphragm carburetor sales in the
second half of 1994. A secondary factor for the WEMC increase was the higher
cost of manufacturing carburetors in Japan and Singapore in light of the
weaker U.S. Dollar during 1994.
In December, 1990, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 106 (SFAS 106), Employer's
Accounting for Post Retirement Benefits Other Than Pensions, and the Company
changed its method of accounting for these benefits in 1993 as required by SFAS
106. See Note 10 of the Notes to the Consolidated Financial Statements for a
detailed discussion of the impact of this change.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative
expenses were $39.3 million in 1994, an increase of 19.0% compared to $33.0
million in 1993. The 1993 selling and administrative expenses decreased by 1.8%
compared to $33.6 million in 1992. As a percent of sales, selling and
administrative expenses were 12.1% in 1994, 12.1% in 1993 and 13.9% in 1992.
In 1994, most expense categories increased to support the sales growth.
Research and development spending increased in 1994 by 28.3% to support the new
product development efforts required by emission regulations for both WEMC and
WAC. The accrual for incentive compensation at WEMC was increased in 1994
because of increased profitability. The percentage decrease in 1993 resulted
from strong sales growth coupled with modest increases in most selling and
administrative expense categories, including research and development, which
were offset by an increase in miscellaneous income and a decline in the
accruals for incentive compensation tied to stockholder value.
REORGANIZATION CHARGES. In 1993, the Company recorded a $1.8 million
reorganization charge reflecting the Company's actual and anticipated expenses
from reorganization of the executive management team at WAC. $1.0 million was
paid in 1993 and the remaing $0.8 million was paid in 1994. The Company does
not anticipate incurring any additional reorganization or restructuring charges
in the near future. See Note 5 of the Notes to the Consolidated Financial
Statements.
WRITE DOWN OF LONG-TERM MARKETABLE SECURITIES. In 1990, the Company acquired
207,000 shares of Common Stock of Mitsuba Electric Company, its joint venture
partner in Mitsuba-Walbro Corporation located in Japan. The investment was
treated as a long-term marketable security for financial statement
presentation. In 1992, management determined that the decline in market value
was likely to be permanent and a charge to earnings of $1.1 million was
recorded. See Note 3 of the Notes to the Consolidated Financial Statements.
LOSS ON FOREIGN EXCHANGE TRANSACTIONS. Foreign exchange contracts are
used primarily to manage the exposure to foreign currency losses from
operations in foreign countries, from investments in foreign joint ventures and
from commitments in foreign currencies. In 1992, the Company entered into
forward foreign exchange contracts to hedge the Company's foreign currency
exposure related to a sales commitment to a foreign customer. The loss on
these contracts was treated as a hedge for accounting purposes and recorded as
a deferred asset, which is being recognized in income as the hedge transaction
occurs. In 1993 and 1994 the Company entered into forward currency exchange
contracts to reduce its exposure against fluctuations in foreign currency rates
and the losses on those contracts were recorded as foreign currency exchange
loss in 1993 and 1994. The foreign currency exchange loss in 1994 was $2.6
million, $1.5 million in 1993 and $0.6 million in 1992. See Note 12 of the
Notes to the Consolidated Financial Statements.
NET INTEREST EXPENSE. Net interest expense was $3.8 million in 1994,
an increase of $1.2 million, compared to $2.6 million in 1993. Net interest
expense declined by $0.6 million in 1993, continuing the trend from 1992, when
net interest
12
<PAGE> 4
Walbro Corporation & Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
expense declined by $2.9 million. The 1994 increase resulted from higher
interest rates and increased borrowings for additional working capital and the
full year effect of financing the Company's Ossian, Indiana plant. During the
fourth quarter of 1994, the Company issued $45 million of senior notes which
contributed to the higher net interest expense. The 1992 decline resulted from
improved operating results, lower short-term interest rates and a net debt
reduction of $11.6 million from the application of proceeds from the Company's
March, 1992 Common Stock offering of $22.1 million. The 1993 decline in net
interest expense resulted from lower short-term interest rates and a debt
reduction for part of the year. During the first half of 1993, the remaining
$6.6 million of 8% Convertible Subordinated Promissory Notes were converted to
shares of Common Stock. Later in 1993, additional debt was issued to finance
the Company's facility in Ossian, Indiana. The average cost of borrowing was
6.2% in 1992, 4.9% in 1993 and 5.9% in 1994.
NET INCOME AND INCOME PER SHARE. Net income for 1994 was $14.6
million, an increase of 16.1% compared to $12.6 million income before
cumulative effect of accounting change in 1993. Net income was $12.5 million
for 1992. The Company's adoption of SFAS 106 during 1993, resulted in a
cumulative charge of $2.9 million ($0.34 per share), net of tax. Therefore,
net income for common stockholders was $9.7 million in 1993. Net income per
share was $1.70 for 1994 compared with income per share before cumulative
effect of accounting change of $1.47 for 1993 and $1.58 net income per share
for 1992. Net income per share for 1993 was $1.13. All per share data is
fully diluted. Net income as a percent of sales was 4.5% in 1994, 4.6% in 1993
(income before accounting change as a percent of sales), and 5.2% in 1992. The
decline in net income as a percent of sales during 1994 was the result of
higher cost of sales, higher interest expense and foreign exchange losses as
explained above. Although sales increased by 13.3% in 1993, income was
basically unchanged from 1992. The 1993 income results reflected increased
costs and expenses. Cost of sales as a percentage increased because of
start-up expenses at the Ligonier and Ossian facilities, and because of
automotive customer recall expenses. Other factors effecting 1993 income were
costs incurred from the reorganization at WAC and losses at joint ventures.
The Company's equity in income or losses of joint ventures reported income in
1992 of $179,000, losses of $89,000 in 1993 and income of $2,609,000 in 1994.
The loss in 1993 was due primarily to first year losses of $538,000 in Brazil
and the significant income in 1994 resulted from profits in all the Company's
joint ventures.
As detailed below, the Company has actively pursued joint venture
opportunities as a means of expanding into new regions of the world market.
The joint venture structure allows the Company to share the risks, capital
requirements and early stage start-up losses with a partner.
In January, 1993, the Company sold its 50% interest in Orbital-Walbro
Corporation to its joint venture partner, Orbital Engine Company Ltd. of
Australia, in exchange for 3.7 million shares of Orbital stock and $5.5 million
in cash. The transaction provided additional opportunities for the Company.
In February, 1993, the Company acquired a 49% interest in Marwal do
Brazil, a Brazilian joint venture with Magneti Marelli S.p.A. of Italy, to
manufacture and market EFI system components for the South American automotive
market.
In March, 1993, the Company acquired all of the outstanding shares of
Walbro Korea Ltd., a joint venture with Siemens A.G. of Germany and Daesung
Ltd. of South Korea. This joint venture was originally formed to manufacture
and market EFI system components for the South Korean automotive market. In
December, 1994, the Company announced the signing of an agreement to form a
joint venture with Daewoo Precision Industries, Ltd. of South Korea to
manufacture fuel sending units for the Korean automobile market.
In January, 1994, the Company purchased a 60% interest in Fujian
Hualong Carburetor of China, a manufacturer of carburetors for two-wheeled
vehicles.
INFLATION. Inflation potentially affects the Company in two principal ways.
First, a portion of the Company's debt is tied to prevailing short-term
interest rates which may change as a result of inflation rates, translating
into changes in interest expense. Second, general inflation can impact labor,
parts and supply costs. The Company has limited ability to pass on
inflation-related cost increases to its customers on a short-term basis. In
addition, the markets served by the Company are competitive in nature, and
competition limits the pass-through of inflation-related cost increases in many
cases. In the past three years, however, inflation has not been a significant
factor for the Company.
LIQUIDITY AND CAPITAL RESOURCES. Cash generated from operations was sufficient
to meet 51%, 84% and 42% of the Company's investment in fixed and other assets
in 1994, 1993 and 1992 respectively. During 1992, the Company redeemed $13.4
million of its 8% Convertible Subordinated Notes in exchange for 827,086 shares
of Common Stock, and during 1993, the Company redeemed the remaining $6.6
million of 8% Convertible Subordinated Notes in exchange for 404,429 shares of
Common Stock.
13
<PAGE> 5
Walbro Corporation & Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
The Company's plans for 1995 capital expenditures for facilities,
equipment and tooling to produce the Company's products total approximately $35
million. The Company intends to finance the capital expenditures with new
borrowing facilities and cash from operations.
At December 31, 1994 the Company had available to it total credit
facilities of $161.5 million, $80 million of which were unused. On October 14,
1994, the company issued $45 million of 7.68% senior notes which expire on
October 1, 2004. The Indenture agreement requires the Company to maintain a
minimum tangible net worth of $85 million, plus 25% of cumulative net income
for each year beginning in 1995, and a funded debt to total capital ratio not
greater than .65 to 1. On January 28, 1993, the Company entered into a bank
revolving credit facility of $80 million. This credit facility bears interest
at rates varying from LIBOR + 5/8% to prime and expires January 28, 1996. The
facility requires the Company to maintain working capital of $20 million, a
fixed charge coverage ratio of 2 to 1, a current ratio of 1.5 to 1,
consolidated tangible net worth of $65 million, plus 50% of cumulative net
income for each year beginning in 1993, and a leverage ratio of not more than 2
to 1. The Company is considering other sources of funds for the acquisition of
the Dyno fuel tank systems business and to replace the bank revolving credit
agreement which expires in 1996.
As of December 31, 1994, the Company had outstanding approximately $7.0
million in short-term debt and approximately $74.6 million in long-term debt,
including current portion. The approximate minimum principal payments required
on the Company's long-term debt in each of the five fiscal years subsequent to
December 31, 1994 are $8.5 million in 1995, $1.0 million in 1996, $1.4 million
in 1997, $7.5 million in 1998 and $7.1 million in 1999. See Note 6 of the
Notes to the Consolidated Financial Statements for a detailed description of
the Company's long-term debt and lines of credit.
Management believes that the Company's long-term cash needs will
continue to be provided principally by operating activities supplemented, to
the extent required, by borrowing under the Company's existing and future
credit facilities. Management expects to replace these credit facilities as
they expire with comparable facilities. The reduction of the Company's
outstanding debt and the increase in its equity capital as a result of the 1991
and 1992 public offerings of Common Stock have provided the Company with
greater financial flexibility to respond quickly to business opportunities as
they arise, including opportunities for growth through either internal
development or strategic acquisitions.
In January, 1995, the Company announced the signing of a letter of
intent to acquire the plastic fuel tank systems business of Dyno Industrier AS,
of Oslo, Norway. Dyno Industrier currently supplies plastic fuel tank systems
to many automobile manufacturers in Europe. Funding for this potential
acquisition is expected to come from new bank borrowing agreements, as well as
additional longer term sources of capital.
COMMON STOCK PRICE AND DIVIDEND INFORMATION
<TABLE>
<CAPTION>
QUARTERS ENDED Market Price Dividends
----------------------------
High Low Per Share
<S> <C> <C> <C>
December 31, 1994 22 16 1/2 $.10
September 30, 1994 24 3/4 20 1/2 .10
June 30, 1994 28 3/4 22 1/4 .10
March 31, 1994 31 1/4 26 1/4 .10
----
$.40
====
December 31, 1993 33 3/4 24 1/4 $.10
September 30, 1993 33 23 1/2 .10
June 30, 1993 29 1/2 25 .10
March 31, 1993 38 1/2 29 .10
----
$.40
====
</TABLE>
On February 17, 1995, the closing per share price was $18.00. The above prices
do no include retail markup, markdown, or commission. As of February 17, 1995,
the approximate number of shareholders was 1,148. Walbro is traded over the
counter under the symbol "WALB" and is listed in the NASDAQ NM stock table.
14
<PAGE> 6
Walbro Corporation & Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF WALBRO CORPORATION:
We have audited the accompanying consolidated balance sheets of Walbro
Corporation (a Delaware corporation) and subsidiaries as of December 31, 1994,
1993 and 1992, and the related consolidated statements of income, stockholders'
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Walbro Corporation and
subsidiaries as of December 31, 1994, 1993 and 1992, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
As discussed in Note 3 to the consolidated financial statements, effective
January 1, 1994, the Company changed its method of accounting for investments
in debt and equity securities. In addition, as discussed in Note 10 to the
consolidated financial statements, effective January 1, 1993, the Company
changed its method of accounting for postretirement benefits other than
pensions.
ARTHUR ANDERSEN LLP
Detroit, Michigan,
February 14, 1995
15
<PAGE> 7
Walbro Corporation & Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
1994 1993 1992
ASSETS -------- -------- --------
(In Thousands, Except Share Data)
<S> <C> <C> <C>
Current Assets:
Cash..................................................... $ 4,540 $ 4,605 $ 8,248
Accounts receivable, net................................. 66,333 44,676 40,369
Inventories.............................................. 31,439 26,898 23,938
Prepaid expenses and other............................... 4,001 7,266 4,544
Deferred and refundable income taxes..................... 3,663 4,871 3,115
--------- --------- ---------
Total Current Assets................................... 109,976 88,316 80,214
--------- --------- ---------
Plant and Equipment, at cost:
Land..................................................... 1,234 426 678
Buildings and improvements............................... 44,668 43,689 34,385
Machinery and equipment.................................. 93,127 71,727 65,128
--------- --------- ---------
139,029 115,842 100,191
Less--Accumulated depreciation........................... 50,737 41,666 34,635
--------- --------- ---------
Net Plant and Equipment................................ 88,292 74,176 65,556
--------- --------- ---------
Other Assets:
Funds held for construction.............................. 1,061 2,710 --
Joint ventures........................................... 16,518 11,278 10,095
Investments.............................................. 10,797 8,057 5,988
Goodwill, net............................................ 16,905 16,937 16,620
Plant and equipment held for resale...................... 80 80 248
Notes receivable......................................... 4,366 3,616 1,974
Deferred income taxes.................................... 871 41 --
Other.................................................... 8,500 10,084 12,325
--------- --------- ---------
Total Other Assets..................................... 59,098 52,803 47,250
--------- --------- ---------
Total Assets........................................... $ 257,366 $ 215,295 $ 193,020
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt......................... $ 8,442 $ 408 $ 7,069
Bank and other borrowings................................. 6,970 5,375 2,642
Accounts payable.......................................... 23,252 19,991 17,070
Accrued liabilities....................................... 12,077 11,500 8,881
Dividends payable......................................... 857 855 810
--------- --------- ---------
Total Current Liabilities............................... 51,598 38,129 36,472
--------- --------- ---------
Long-Term Liabilities:
Long-term debt, less current portion...................... 66,136 52,392 49,638
Pension obligations and other............................. 8,153 8,071 3,157
Deferred income taxes..................................... 2,439 2,557 3,843
Minority interest......................................... 1,125 -- --
--------- --------- ---------
Total Long-Term Liabilities............................. 77,853 63,020 56,638
--------- --------- ---------
Stockholders' Equity
Common stock, $.50 par value; authorized
15,000,000; outstanding 8,564,576 in 1994,
8,551,782 in 1993, and 8,098,242 in 1992................ 4,282 4,276 4,049
Paid-in capital........................................... 64,221 63,997 57,139
Retained earnings......................................... 55,855 44,686 38,422
Deferred compensation..................................... (1,225) (1,634) (2,042)
Minimum pension liability adjustment...................... -- (520) (371)
Unrealized gain on securities available for sale.......... 1,428 -- --
Cumulative translation adjustments........................ 3,354 3,341 2,713
--------- --------- ---------
Total Stockholders' Equity.............................. 127,915 114,146 99,910
--------- --------- ---------
Total Liabilities and Stockholders' Equity.............. $ 257,366 $ 215,295 $ 193,020
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
16
<PAGE> 8
Walbro Corporation &Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
(In Thousands, Except Per Share Data)
<S> <C> <C> <C>
Net Sales................................................................ $325,205 $273,463 $241,416
Costs and Expenses:
Cost of sales.......................................................... 261,501 216,804 185,712
Selling and administrative expenses.................................... 39,318 33,043 33,614
Reorganization and restructuring charges............................... -- 1,760 --
-------- -------- --------
Operating Income 24,386 21,856 22,090
Other Expense (Income):
Unrealized loss on marketable equity security.......................... -- -- 1,050
Interest expense....................................................... 3,862 2,594 3,704
Interest income........................................................ (91) (35) (591)
Foreign currency exchange loss......................................... 2,602 1,495 566
Other.................................................................. 111 572 350
-------- -------- --------
Income before provision for income taxes,
minority interest, equity in (income) loss of
joint ventures and cumulative effect of
accounting change.................................................... 17,902 17,230 17,011
Provision for income taxes............................................... 5,824 4,574 4,664
Minority interest........................................................ 92 -- --
Equity in (income) loss of joint ventures................................ (2,609) 89 (179)
-------- -------- --------
Income before cumulative effect of
accounting change...................................................... 14,595 12,567 12,526
Cumulative effect of accounting change,
net of tax benefit of $1,494 in 1993................................... -- 2,900 --
-------- -------- --------
Net income............................................................... $ 14,595 $ 9,667 $ 12,526
-------- -------- --------
Primary Income Per Share:
Income before cumulative effect of
accounting change.................................................... $ 1.70 $ 1.47 $ 1.63
Cumulative effect of accounting change,
net of tax benefit................................................... -- (.34) --
-------- -------- --------
Net income............................................................. $ 1.70 $ 1.13 $ 1.63
======== ======== ========
Fully Diluted Income Per Share:
Income before cumulative effect of
accounting change.................................................... $ 1.70 $ 1.47 $ 1.58
Cumulative effect of accounting change,
net of tax benefit -- (.34) --
-------- -------- --------
Net income............................................................. $ 1.70 $ 1.13 $ 1.58
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
17
<PAGE> 9
Walbro Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended December 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
UNREALIZED
GAIN ON
MINIMUM SECURITIES CUMULATIVE
COMMON PAID-IN RETAINED DEFERRED PENSION AVAILABLE TRANSLATION
STOCK CAPITAL EARNINGS COMPENSATION LIABILITY FOR SALE ADJUSTMENTS
------ ------- -------- ------------ --------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance--
December 31, 1991................. $3,049 $17,355 $29,088 $(2,450) $ -- $ -- $3,297
Net proceeds from public
offering of 1,112,135
shares of common stock........... 556 25,720 -- -- -- -- --
Conversion of convertible
subordinated notes into
827,086 shares of
common stock.................... 414 12,794 -- -- -- -- --
Conversion of
Serice C redeemable
preferred stock................. 15 930 -- -- -- -- --
Exercise of stock options......... 15 340 -- -- -- -- --
ESOP debt payments................ -- -- -- 408 -- -- --
Net income........................ -- -- 12,526 -- -- -- --
Addtional minimum
pension liablity................ -- -- -- -- (371) -- --
Cash dividens
($.40 per share)................ -- -- (3,192) -- -- -- --
Translation adjustments........... -- -- -- -- -- -- (584)
------ ------- ------- ------- ----- ------- ------
Balance--
December 31, 1992................. 4,049 57,139 38,422 (2,042) (371) -- 2,713
conversion of convertible
subordinated notes into
404,429 shares of
common stock.................... 202 6,273 -- -- -- -- --
Exercise of stock options......... 25 585 -- -- -- -- --
ESOP debt payments................ -- -- -- 408 -- -- --
Net income........................ -- -- 9,667 -- -- -- --
Aditonal minimum
pension liability............... -- -- -- -- (149) -- --
Cash dividends
($.40 per share)................ -- -- (3,403) -- -- -- --
Translation adjustments........... -- -- -- -- -- -- 628
------ ------- ------- ------- ----- ------- ------
Balance--
December 31, 1993................. 4,276 63,997 44,686 (1,634) (520) -- 3,341
Change in accounting for
securities available for
sale-January 1, 1994............ -- -- -- -- -- 2,096 --
Exercise of stock options......... 6 224 -- -- -- -- --
ESOP debt payments................ -- -- -- 409 -- -- --
Net income........................ -- -- 14,595 -- -- -- --
Additional minimum
pension liability............... -- -- -- -- 520 -- --
Cash dividends
($.40 per share)................ -- -- (3,426) -- -- -- --
Change in market value of
securities available
for sale........................ -- -- -- -- -- (668) --
Translation adjustments........... -- -- -- -- -- -- 13
------ ------- ------- ------- ----- ------- ------
Balance--
December 31, 1994................. $4,282 $64,221 $55,855 $(1,225) $ -- $1,428 $3,354
====== ======= ======= ======= ===== ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
18
<PAGE> 10
Walbro Corporation & Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
(in Thousands)
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income................................................. $ 14,595 $ 9,667 $ 12,526
Adjustments to reconcile net income to net
cash provided by operating activities-
Depreciation and amortization.......................... 14,672 11,339 10,339
Cumulative effect of accounting change................. -- 2,900 --
Loss on disposition of assets.......................... 449 372 870
Minority interest...................................... 92 -- --
(Income) loss of joint ventures........................ (2,609) 89 (179)
Reorganization and restructuring charges............... -- 754 --
Unrealized loss on marketable equity security.......... -- -- 1,050
Change in assets and liabilities, net of
effects of acquisitions:
Deferred income taxes................................ (681) (1,324) (1,117)
Deferred pension obligations and other............... 519 544 659
Accounts payable and accrued liabilities............. 704 4,220 (1,436)
Accounts receivable, net............................. (18,463) (3,449) (8,078)
Inventories.......................................... (3,752) (2,752) (3,297)
Prepaid expenses and other........................... 4,951 (6,979) (3,767)
-------- -------- --------
Total adjustments.................................... (4,118) 5,714 (4,956)
-------- -------- --------
Net cash provided by operating activities.............. 10,477 15,381 7,570
-------- -------- --------
Cash Flows From Investing Activities:
Purchase of plant and equipment............................ (18,844) (20,260) (14,681)
Acquisitions, net of cash acquired......................... (1,480) 1,312 --
Purchase of other assets................................... (2,615) (2,047) (3,455)
Investment in joint ventures and other..................... (1,508) (1,333) (4,206)
Proceeds from disposal of assets........................... 1,463 3,149 276
-------- -------- --------
Net cash used in investing activities.................. (22,984) (19,179) (22,066)
-------- -------- --------
Cash Flows From Financing Activities:
Net borrowings (repayments) under revolving
line-of-credit agreements................................ (27,739) (3,691) 8,834
Debt repayments............................................ (824) (2,617) (13,247)
Proceeds from issuance of long-term debt................... 45,000 9,000 6,300
Proceeds from issuance of common
stock and options........................................ 230 610 26,629
Retirement of redeemable preferred stock -- -- (6,500)
Cash dividends paid........................................ (3,424) (3,359) (2,992)
Net cash provided by (used in) -------- -------- --------
financing activities................................... 13,243 (57) 19,024
-------- -------- --------
Effect of exchange rate changes on cash.................... (801) 212 (513)
-------- -------- --------
Net increase (decrease) in cash............................ (65) (3,643) 4,015
Cash at beginning of year.................................. 4,605 8,248 4,233
-------- -------- --------
Cash at end of year........................................ $ 4,540 $ 4,605 $ 8,248
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
19
<PAGE> 11
Walbro Corporation & Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
Principles of Consolidation:
The consolidated financial statements include the accounts of Walbro
Corporation and its wholly-owned and majority owned subsidiaries (the Company).
Investments in joint ventures are generally accounted for under the equity
method (Note 2). Significant transactions and balances among the Company and
its subsidiaries have been eliminated in the consolidated financial statements.
Foreign Currency Translation:
The assets and liabilities of the Company's foreign operations are generally
translated into U.S. dollars at current exchange rates, and revenues and
expenses are translated at average exchange rates for the year. Resulting
translation adjustments are reflected as a separate component of stockholders'
equity.
Transaction gains and losses that arise from exchange rate fluctuations
on transactions denominated in a currency other than the functional currency,
except those transactions which operate as a hedge of an identifiable foreign
currency commitment or as a hedge of a foreign currency investment position, are
included in the results of operations as incurred.
Accounts Receivable:
Accounts receivable are net of allowances for doubtful accounts of $732,000,
$413,000 and $340,000 as of December 31, 1994, 1993 and 1992, respectively.
Inventories:
Inventories are stated at the lower of cost (first-in, first-out) or market.
Inventories include raw materials and component parts, work-in- process and
finished products. Work-in-process and finished products inventories include
material, labor and manufacturing overhead costs.
Inventory at December 31, 1994 consisted of the following (in
thousands):
<TABLE>
<CAPTION>
1994
-------
<S> <C>
Raw materials and components $19,310
Work-in-process 6,915
Finished products 5,214
-------
$31,439
=======
</TABLE>
Amounts included in work-in-process and finished products in 1993 and 1992 were
not material.
Plant and Equipment:
The Company provides for depreciation of plant and equipment based upon the
acquisition costs and the estimated service lives of depreciable assets. The
straight-line method is the principal method used to compute depreciation for
financial reporting purposes. However, the units- of-production method is used
to compute depreciation of certain equipment. Estimated service lives of
depreciable assets are as follows: buildings and improvements - 30 years,
machinery and equipment - 5 to 10 years.
Marketable Equity Securities:
Effective January 1, 1994, the carrying value of marketable equity securities
is market value (Note 3). During 1993 and 1992, the carrying value of
marketable equity securities was based on the lower of cost or quoted market
value. Net unrealized losses on non-current marketable equity securities that
were deemed to be other than temporary were reflected in income. Realized
gains and losses on the sale of marketable equity securities are recognized in
income on the specific identification basis.
Goodwill:
Goodwill consists of purchase price and related acquisition costs in excess of
the fair value of the identifiable net assets acquired. Goodwill is amortized
on a straight-line basis over 15 to 40 years. The Company evaluates the
carrying value of goodwill for potential impairment on an ongoing basis. Such
evaluations compare operating income before amortization of goodwill of the
operations to which goodwill relates to the amortization recorded. The Company
also considers future anticipated operating results, trends and other
circumstances in making such evaluations.
Goodwill consisted of the following at December 31 (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- -------
(In Thousands)
<S> <C> <C> <C>
Goodwill $19,367 $18,943 $18,137
Less: Accumulated
amortization (2,462) (2,006) (1,517)
------- ------- -------
$16,905 $16,937 $16,620
======= ======= =======
</TABLE>
Income Taxes:
The consolidated financial statements for 1994 and 1993 have been prepared in
accordance with the provisions of Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting for Income Taxes." The adoption of SFAS No. 109 as
of January 1, 1993 did not have a material impact on the consolidated financial
statements of the Company. The consolidated financial statements for 1992 have
been prepared in accordance with the provisions of SFAS No. 96, which was
superseded by SFAS No. 109. The 1992 consolidated financial statements have
not been restated to conform to the 1994 and 1993 presentation.
Deferred income taxes represent the effect of cumulative temporary
differences between income and expense items reported for financial statement
and tax purposes, and between the bases of various assets and liabilities for
financial statement and tax purposes. Deferred tax assets are reduced by a
valuation allowance if, based on the weight of evidence, it is deemed more
likely than not that the asset will not be realized.
Research and Development Costs:
Research and development costs are charged to operations as incurred and
amounted to
20
<PAGE> 12
Walbro Corporation & Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1. SUMMARY OF SIGNIFCANT ACCOUNTING POLICIES. (continued)
$12,199,000, $9,484,000 and $9,040,000 for 1994, 1993 and 1992,
respectively.
Financial Instruments:
The Company enters into interest rate swap agreements. The differential to be
paid or received is accrued as interest rates change and is recognized over the
life of the agreements. In order to manage exposure to fluctuations in foreign
currency exchange rates, the Company regularly enters into forward currency
exchange contracts. Gains and losses on contracts that hedge specific foreign
currency commitments are deferred and recognized in net income in the period in
which the related transaction is consummated. Gains and losses on contracts
that hedge net investments in foreign joint ventures or subsidiaries are
recognized as cumulative translation adjustments in stockholders' equity.
Gains and losses on forward currency exchange contracts that do not qualify as
hedges are recognized as other income or expense.
Per Share Information:
Primary income per share is based on the weighted average number of shares
outstanding during each period. Shares used in the per share calculations were
8,602,077 in 1994, 8,537,375 in 1993 and 7,675,974 in 1992.
Fully diluted income per share is calculated by dividing income, after
deducting interest on the subordinated debt, by the weighted average common
shares outstanding during the period under the treasury stock method. Shares
used in the per share calculations were 8,602,077 in 1994, 8,537,375 in 1993
and 8,160,472 in 1992.
Reclassifications:
Certain amounts in prior years' consolidated financial statements have been
reclassified to conform with the presentation used in 1994.
NOTE 2. JOINT VENTURES.
The investments in joint ventures as of December 31 are as follows:
<TABLE>
<CAPTION>
Percent Beneficial Ownership
1994 1993 1992
-------- ------ ------
<S> <C> <C> <C>
Marwal Systems, S.A. 49% 49% 49%
Walbro Korea Ltd. (Note 4) (Note 4) 50%
Mitsuba-Walbro, Inc. 50% 50% 50%
Marwal do Brasil, Ltda. 49% 49% --
Korea Automotive Fuel Systems, Ltd. 49% -- --
</TABLE>
The above joint ventures are generally involved in the design and
manufacture of precision fuel systems products for the global automotive
market.
All of the above investments in joint ventures are accounted for using
the equity method, except Walbro Korea Ltd. in 1994 and 1993 (Note 4). Certain
adjustments are made to the joint ventures' income so that recorded income is
stated in accordance with United States generally accepted accounting
principles. At December 31, 1994, the cumulative effect of these adjustments
was to increase the Company's equity in its joint ventures by approximately
$1,300,000. At December 31, 1994, the amount included in retained earnings as
undistributed earnings of foreign joint ventures was approximately $918,000.
In December 1994, the Company entered into a joint venture (Korea
Automotive Fuel Systems, Ltd.) with Daewoo Precision Industries in Korea. Korea
Automotive Fuel Systems, Ltd. manufactures fuel sending units for the Korean
automotive market.
In February 1993, the Company entered into a joint venture (Marwal do
Brasil, Ltda.) with Magneti Marelli, S.p.A. in Brazil. Marwal do Brasil, Ltda.
manufactures and markets fuel system components to customers in South America.
Summarized combined financial information for joint ventures accounted
for under the equity method is as follows (unaudited, in thousands):
<TABLE>
<CAPTION>
As of December 31,
Balance sheet data: 1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Current assets $53,160 $35,773 $32,851
Non-current assets 26,069 20,140 16,248
Current liabilities 48,160 36,672 28,959
Non-current liabilities 786 882 1,885
</TABLE>
<TABLE>
<CAPTION>
Income statement data: Year Ended December 31,
1994 1993 1992
-------- ------- -------
<S> <C> <C> <C>
Net sales $137,873 $80,722 $72,431
Gross profit 29,283 15,063 14,671
Income before provision
for income taxes 8,136 962 291
Net income (loss) 5,164 466 (362)
</TABLE>
Dividends from joint ventures of approximately $38,000, $45,000 and $40,000
were received by the Company during 1994, 1993 and 1992, respectively. The
Company has sales to joint ventures of approximately $20,407,000, $20,456,000
and $15,942,000 for 1994, 1993 and 1992, respectively. Included in accounts
receivable are trade receivables from joint ventures of approximately
$7,349,000, $1,882,000 and $5,064,000 for 1994, 1993 and 1992, respectively.
The Company had purchases from joint ventures of approximately $15,329,000,
$11,820,000 and $9,791,000 for 1994, 1993 and 1992, respectively. Included in
accounts payable are trade payables to joint ventures of approximately $782,000
and $1,120,000 for 1994 and 1993, respectively. Trade payables to joint
ventures were not material for 1992.
21
<PAGE> 13
Walbro Corporation & Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 3. INVESTMENTS.
Effective January 1, 1994, the Company adopted SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." This Statement requires
that certain investments be classified into three separate categories:
"held-to-maturity", "available-for-sale", and "trading," each with different
accounting treatment. The Company has classified its investments in common
stock securities as "available-for-sale" which requires the Company to record
these investments at fair market value and record the gross unrealized holding
gains and losses, after-tax, as a separate component of stockholders' equity.
The impact of adoption at January 1, 1994 was to increase investments by
approximately $3,225,000 and to increase stockholders' equity by $2,096,000,
net of income taxes.
As of December 31, 1994, the fair market value of the Company's
investments was approximately $10,797,000, including gross unrealized holding
gains of approximately $2,167,000 ($1,428,000 after-tax). During the year
ended December 31, 1994, the gross unrealized holding gains decreased by
approximately $1,058,000 ($668,000 after-tax), which was reflected as a change
in stockholders' equity.
At December 31, 1993 and 1992, the portfolio of noncurrent marketable
equity securities includes gross unrealized gains of approximately $3,240,000
and $5,458,000, respectively.
In 1990, the Company acquired 207,000 shares of common stock of Mitsuba
Electric Company, its joint venture partner in Mitsuba- Walbro, Inc. The
investment is treated as a noncurrent marketable equity security for financial
statement presentation. Prior to 1992, any decrease in the market value of the
Mitsuba Electric stock was determined to be temporary in nature. With the
deterioration of the Japanese economy, the losses suffered by the Japanese
automakers and their component suppliers along with the strengthening of the
Yen in 1992, it was determined that the decline in value was deemed to be other
than temporary in nature and a charge to earnings of $1,050,000 was recorded in
the fourth quarter of 1992.
NOTE 4. ACQUISITIONS.
In January 1994, the Company acquired a 60% interest in Fujian Hualong
Carburetor Co., Ltd. (Fujian), which manufactures and markets carburetors for
two-wheeled vehicles in China. In connection with the joint venture, the
Company exchanged approximately $1,500,000 for a 60% ownership interest in
Fujian. This acquisition was accounted for as a purchase. The purchase price
approximated the fair value of the net assets acquired. As a result, Fujian's
balance sheet as of December 31, 1994 and its results of operations for the
period then ended have been included in the Company's consolidated financial
statements.
In May 1994, the Company acquired a 100% ownership interest in an
engineering firm in Canada (Walbro Canada) for an aggregate purchase price of
$352,000. This acquisition was accounted for as a purchase. The excess of the
purchase price over the fair value of the net assets acquired was approximately
$424,000 and will be amortized over 15 years. As a result, Walbro Canada's
balance sheet as of December 31, 1994 and its results of operations for the
period since the date of acquisition have been included in the Company's
consolidated financial statements.
In April 1993, the Company purchased the interests of its joint venture
partners in Walbro Korea Ltd. for a purchase price of approximately $640,000,
including related expenses. As a result, the Company now has 100% ownership.
Prior to this purchase, the Company owned 50% of Walbro Korea Ltd.'s common
stock and accounted for its investment under the equity method of accounting.
This acquisition was accounted for as a purchase. The excess of the purchase
price over the fair value of net assets acquired was approximately $800,000.
Walbro Korea Ltd. has been included in the Company's consolidated financial
statements from the date of purchase.
Pro forma results of these acquisitions, assuming they had taken place
at the beginning of each year presented, would not be materially different from
the results reported.
NOTE 5. REORGANIZATION AND RESTRUCTURING CHARGES.
During 1993, the Company recorded a pretax charge of $1,760,000 for employee
separation costs in connection with a management reorganization, of which
$1,006,000 was paid during the year. The remaining amount of $754,000 was paid
during 1994.
22
<PAGE> 14
Walbro Corporation & Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 6. LONG-TERM DEBT AND LINES OF CREDIT.
<TABLE>
<CAPTION>
Long-term debt consisted of the following at
December 31:
1994 1993 1992
------- ------- -------
(In Thousands)
<S> <C> <C> <C>
Senior notes, unsecured, interest at 7.68%, payable in
annual amounts from 1998 to 2004 ................................. $45,000 $ -- $ --
Revolving credit loan, interest rate from
LIBOR plus 5/8% to prime, unsecured .............................. -- 28,750 35,050
Industrial revenue bond, issued by Town of
Ossian, Indiana, interest at a variable municipal
bond rate, due in 2023 ........................................... 9,000 9,000 --
Industrial revenue bond, issued by City of Ligonier,
Indiana, interest at a variable municipal bond rate
plus 1%, payable in annual amounts from
2003 to 2007 ..................................................... 6,300 6,300 6,300
Convertible subordinated promissory notes,
8%, callable in April 1993, convertible into
shares of common stock at a rate of one share
for each $16.24 of principal ..................................... -- -- 6,568
Foreign bank note, payable in Japanese yen, interest at
Japanese prime, due in May 1995 .................................. 7,519 6,708 6,014
Foreign bank note, payable in Chinese Renminbi,
interest at 9.8%, due in 1997..................................... 348 -- --
ESOP credit agreement, interest rate which
approximates 86% of prime, payable in annual
installments of $408,000 ......................................... 1,634 2,042 2,451
Capital lease obligations, interest at 7.5%, payable in
monthly installments through February 2002 ....................... 4,710 -- --
Other .............................................................. 67 -- 324
------- ------- -------
74,578 52,800 56,707
Less - current portion 8,442 408 7,069
------- ------- -------
$66,136 $52,392 $49,638
======= ======= =======
</TABLE>
In October 1994, the Company sold $45,000,000 of 7.68% senior notes (Senior
Notes). The Senior Notes require quarterly interest payments due January 1,
April 1, July 1 and October 1. The agreement requires the Company to maintain
consolidated adjusted net worth of $85 million plus 25% of cumulative net
income for each year beginning in 1995 and a funded debt to total capital ratio
not greater than .65 to 1.
In January 1993, the Company amended its revolving credit agreement
increasing the Company's borrowing capacity under the agreement up to $80
million. The amended revolving credit agreement is subject to a commitment fee
of 1/8% to 3/8% on the unused portion, bears interest at rates varying from
LIBOR plus 5/8% to prime and expires in January 1996. The agreement requires
the Company to maintain working capital of $20 million, a fixed charge coverage
ratio of 2 to 1, a current ratio of not less than 1.5 to 1, consolidated
tangible net worth of $65 million plus 50% of cumulative net income for each
year beginning in 1993 and a leverage ratio of not more than 2 to 1.
During 1994, the Company entered into an agreement to lease certain
machinery under terms which qualified as a capital lease. As of December 31,
1994, assets recorded under this capital lease were approximately $5,109,000,
net of accumulated amortization of approximately $18,000.
Aggregate minimum principal payment requirements on long-term debt,
including capital lease obligations, in each of the five years subsequent to
December 31, 1994 are as follows: 1995 - $8,442,000; 1996 - $963,000; 1997 -
$1,421,000; 1998 - $7,503,000; 1999 - $7,144,000, and thereafter - $49,105,000.
In addition to long-term debt, the Company and its subsidiaries have
line of credit arrangements with foreign banks for short-term borrowings of
approximately $11,919,000, $7,200,000 and $2,500,000 at December 31, 1994, 1993
and 1992, respectively. The weighted average interest rate on short-term bank
borrowings outstanding under these arrangements was 6.7%, 5.6% and 3.9% as of
December 31, 1994, 1993 and 1992, respectively. Certain of these borrowings are
secured by certain plant and equipment.
23
<PAGE> 15
Walbro Corporation & Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 7. COMMITMENTS AND CONTINGENCIES.
The manufacture of automotive components entails the risk that a customer or
governmental authority may require the recall of one of the Company's products
or a product in which one of the Company's products has been installed. The
Company has taken and will continue to take all reasonable precautions to avoid
the risk of exposure to a recall or warranty claim that would have a material
effect on the financial position of the Company. The Company does not believe
that any insurance is available to protect against potential product
recall/warranty liability. The Company provides for warranty claims on its
products on an ongoing basis.
Management believes that any liability resulting from these matters will
not have a material impact on the financial position or future results of
operations of the Company.
NOTE 8. INCOME TAXES.
The provisions of SFAS No. 109, "Accounting for Income Taxes" have been applied
in the consolidated financial statements for the years ended December 31, 1994
and 1993. The provisions of SFAS No. 96, "Accounting for Income Taxes" have
been applied in the consolidated financial statements for the year ended
December 31, 1992. A summary of income before provision for income taxes,
minority interest, equity in (income) loss of joint ventures, and cumulative
effect of accounting change, and components of the provision are as follows:
<TABLE>
<CAPTION>
Income before provision for income taxes, minority 1994 1993 1992
interest, equity in (income) loss of joint ventures and ---- ---- ----
cumulative effect of accounting change: (In Thousands)
<S> <C> <C> <C>
Domestic ................................................. $12,873 $12,765 $13,749
Foreign ................................................. 5,029 4,465 3,262
------- ------- -------
$17,902 $17,230 $17,011
Provision for income taxes: ======= ======= =======
Currently payable--
Domestic ................................................. $ 3,313 $ 4,923 $ 4,042
Foreign .................................................. 1,674 1,931 1,397
Utilization of tax credits ............................... (605) (1,075) --
------- ------- -------
4,382 5,779 5,439
------- ------- -------
Deferred--
Domestic ................................................. 1,067 (1,161) (699)
Foreign .................................................. (14) (309) (76)
Effect of change in U.S. statutory rate .................. -- (90) --
Change in beginning of year valuation allowance .......... 389 355 --
------- ------- -------
1,442 (1,205) (775)
------- ------- -------
$ 5,824 $ 4,574 $ 4,664
======= ======= =======
</TABLE>
Reconciliations of the U.S. Federal statutory income tax rates to the Company's
consolidated effective income tax rates applicable to continuing operations are
as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
U.S. Federal statutory income tax rate .................... 35.0% 35.0% 34.0%
Increase (decrease) in effective income
tax rate resulting from--
Differences between U.S. and
foreign income tax rates ............................ (1.2) .3 .4
Utilization of tax credits ............................ (3.4) (6.3) (8.7)
Increase in valuation allowance ....................... 2.2 -- --
Goodwill amortization ................................. .9 .9 .9
Other, net ............................................ (1.0) (3.4) .8
---- ---- ----
Effective income tax rates ................................ 32.5% 26.5% 27.4%
==== ==== ====
</TABLE>
24
<PAGE> 16
Walbro Corporation & Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 8. INCOME TAXES. (continued)
The components of the net deferred income tax (asset) liability at December 31,
1994 and 1993 are summarized as follows:
<TABLE>
<CAPTION>
1994 1993
------- -------
Deferred income tax liabilities: (In Thousands):
<S> <C> <C>
Depreciation and basis
difference.................................. $ 5,342 $ 4,958
Employee benefits............................. 1,470 1,535
Income on joint ventures...................... -- 556
Basis difference on foreign
currency contracts.......................... 910 999
Unrealized gain on
securities available for sale............... 739 --
Other......................................... 483 660
------- -------
8,944 8,708
------- -------
Deferred income tax assets:
Estimated net operating loss carryforwards.... (585) (585)
Employee benefits............................. (3,552) (3,135)
Accruals...................................... (238) (1,276)
Minimum pension liability adjustment.......... -- (274)
Inventory..................................... (613) (611)
Accounts and notes receivable reserve......... (159) (179)
Write-down of investment...................... (368) (368)
Loss on joint ventures........................ (2,072) (2,646)
Othe.......................................... (207) (150)
------- -------
(7,794) (9,224)
------- -------
Valuation allowance........................... 744 355
------- -------
(7,050) (8,869)
------- -------
Net deferred income tax (asset) liability....... $ 1,894 $ (161)
======= =======
</TABLE>
The net change in the valuation allowance during 1994 and 1993 was an increase
of $389,000 and $355,000, respectively.
The sources of the timing differences and the related income tax
effects which compose the deferred income tax provision for 1992 are
as follows:
<TABLE>
<CAPTION>
1992
----
(In Thousands)
<S> <C>
Depreciation........................................... $ 143
Inventory cost capitalization for tax purposes......... (103)
Reserve for restructuring costs........................ 68
ESOP contribution...................................... (9)
Gain on machinery and equipment........................ 5
Inventory reserve...................................... (179)
Employee benefits and bonuses.......................... (135)
Account and note reserves.............................. (128)
Plant closing reserve.................................. 388
Other.................................................. (825)
-----
$(775)
=====
</TABLE>
At December 31, 1994, the cumulative amount of undistributed earnings of
foreign subsidiaries was approximately $16,500,000. No deferred U.S. income
taxes have been provided on these earnings as such amounts are deemed to be
permanently reinvested. If such earnings were remitted, the impact of foreign
withholding taxes would not be significant. The Company has net operating loss
carryforwards available from one of its subsidiaries of approximately
$1,670,000. These carryforwards expire in the year 2003.
Provisions for state income taxes are included in selling and
administrative expenses and amounted to $1,203,000 in 1994, $722,000 in 1993
and $1,035,000 in 1992.
NOTE 9. STOCK OPTION PLANS AND LONG-TERM INCENTIVE PLANS.
The Company has a stock option plan, the Walbro Corporation 1983 Incentive
Stock Option Plan (1983 Plan), under which 155,850 shares of common stock are
reserved for issuance to officers and key employees. Options may be granted
for periods of up to ten years at prices greater
25
<PAGE> 17
Walbro Corporation & Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 9. STOCK OPTION PLANS AND LONG-TERM INCENTIVE PLANS. (continued)
than or equal to the market value at the date of grant.
In addition, during 1991, the Board of Directors authorized the
Walbro Corporation Equity Based Long Term Incentive Plan, under which 428,900
shares of common stock are reserved for issuance to officers and key employees.
During 1992, the stockholders of the Company approved approximately an
additional 330,400 shares of common stock reserved for issuance to officers and
key employees, bringing the total shares of common stock reserved for issuance
to approximately 759,300. Options are granted yearly based on certain
financial performance criteria as compared to the annual business plan. In
addition, grants are awarded yearly which, when exercised, result in a cash
bonus equal to the price of the common stock. If the Company's common stock
price appreciates at a 17% compounded rate over a five year term, the number of
grants awarded, valued at the common stock price, will equal the dollar amount
necessary to exercise the stock options. Participants will receive a greater
or lesser number of grants based on the actual market performance of the stock
over the term of the plan. The number of grants outstanding was 30,915, 31,912
and 43,012 as of December 31, 1994, 1993 and 1992, respectively.
A summary of the stock option transactions of the 1983 Plan and the
Equity Based Long Term Incentive Plan for the years ended December 31, 1992,
1993 and 1994 is as follows:
<TABLE>
<CAPTION>
Number of Shares Option Price (per share)
---------------- ------------------------
<S> <C> <C>
Outstanding and exercisable,
December 31, 1991............ 169,232 $ 9.25 - 26.00
Granted........................ 49,599 26.00
Exercised...................... (29,972) 9.25 - 15.25
Canceled....................... (1,000) 10.88
--------
Outstanding and exercisable,
December 31, 1992............ 187,859 9.25 - 26.00
Granted........................ 73,380 27.13 - 33.25
Exercised...................... (49,111) 9.25 - 26.00
Canceled....................... (9,116) 26.00
--------
Outstanding and exercisable,
December 31, 1993............. 203,012 9.25 - 33.25
Granted........................ 88,701 17.00
Exercised...................... (12,794) 10.88 - 26.00
Canceled....................... (5,808) 10.88 - 33.25
--------
Outstanding and exercisable,
December 31, 1994............ 273,111 $ 9.25 - 33.25
========
</TABLE>
In 1991, the Company approved the Walbro Engine Management Corporation (EMC)
Incentive Compensation Plan which covers selected officers and key employees of
EMC. The purpose of the plan is to increase the proportion of officer and key
employee compensation tied to the profitability and cash flow of EMC, a
wholly-owned subsidiary of the Company. The plan requires EMC management to
amortize over a seven-year period, in annual installments of interest and
principal, an amount approximating the fair market value (FMV) of EMC at July
1, 1991. If all required payments have been made at the end of the fifth plan
year, the participants will receive an amount equal to 15% of the FMV of EMC.
At that time, if the payments made are less than 100% but greater than 70% of
the required amortization amount, the participants are eligible to receive a
pro-rata share of the 15% of FMV of EMC based on the actual repayment
percentage achieved. The Company has accrued approximately $3,100,000,
$1,480,000 and $180,000 as of December 31, 1994, 1993 and 1992, respectively,
under this plan.
NOTE 10. POSTRETIREMENT HEALTH BENEFITS.
The Company provides postretirement health care, dental benefit and
prescription drug coverage to a limited number of current retirees. The cost
of these benefits was recognized as expense as premiums were paid and such
amounts were not significant for the year ended December 31, 1992.
Postretirement benefits are not available for active employees.
Effective January 1, 1993, the Company changed its method of
accounting for the cost of these benefits from a pay-as-you-go (cash) method to
an accrual method as required by SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions," and recognized the unfunded
transition obligation of $4,394,000 ($2,900,000 after-tax) as a one-time
cumulative effect of change in accounting.
26
<PAGE> 18
Walbro Corporation & Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 10. POSTRETIREMENT HEALTH BENIFITS. (continued)
The following table reconciles the status of the accrued postretirement
benefits obligation at December 31:
<TABLE>
<CAPTION>
1994 1993
------- -------
(In Thousands)
<S> <C> <C>
Retirees...................................... $ 4,687 $ 5,572
Fully eligible active plan participants....... -- --
Other active plan participants................ -- --
------- -------
4,687 5,572
Plan assets at fair value..................... -- --
------- -------
Accumulated postretirement benefit obligation
in excess of plan assets..................... 4,687 5,572
Unrecognized net loss......................... (190) (1,120)
------- -------
Accrued postretirement benefits obligation.... $ 4,497 $ 4,452
======= =======
</TABLE>
Net periodic postretirement benefit cost consisted of the following for the
years ended December 31, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
---- ----
(In Thousands)
<S> <C> <C>
Interest cost............................... $378 $321
Amortization of unrecognized
net loss................................... 35 --
---- ----
$413 $321
==== ====
</TABLE>
The unrecognized net loss in 1993 results from a change in the discount rate
from 7.5% to 7.0%. The discount rate used in 1994 was 8.5%.
For measurement purposes, an 11.3% annual rate of increase was
assumed in per capita cost of covered health and dental care benefits for 1994.
The rate was assumed to gradually decrease to 5% by the year 2003 and remain at
that level thereafter. The health care cost trend rate assumption has a
significant impact on the accumulated postretirement benefit obligation and on
future amounts accrued. A one percentage point increase each year in the
assumed health care cost would increase the accumulated postretirement benefit
obligation at December 31, 1994 by $417,000 and the interest cost component of
net periodic postretirement benefit cost for the year ended December 31, 1995
by $37,000.
Effective January 1, 1994, the Company adopted the provisions of
SFAS No. 112, "Employers' Accounting for Postemployment Benefits." This
Statement requires that employers accrue the cost of postemployment benefits
during the employees' active service. The adoption of this Statement did not
have a material effect on the Company's financial position or results of
operations.
NOTE 11. PENSION PLANS.
The Company sponsors pension plans covering substantially all domestic
collectively bargained and certain foreign employees. The plan covering
domestic collectively bargained employees provides benefits of stated amounts
for each year of service. Plans covering certain foreign employees provide
payments at termination which are based upon length of service, compensation
rate and whether termination was voluntary or involuntary. The Company
annually contributes to the plan covering domestic employees amounts which are
actuarially determined to provide the plan with sufficient assets to meet
future benefit payment requirements. The plans covering foreign employees are
generally not funded.
Total pension expense amounted to $239,000 in 1994, $280,000 in 1993
and $526,000 in 1992. The Company recognizes currently the amount which would
be payable if all employees covered by its foreign plan terminated voluntarily.
Pension expense for the plan covering domestic employees is comprised of the
following:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Service cost........................ $165 $157 $318
Interest on projected benefit
obligation........................ 219 197 263
Actual return on assets............. (182) (297) (219)
Net amortization and deferral....... 16 171 11
---- ---- ----
$218 $228 $373
==== ==== ====
</TABLE>
27
<PAGE> 19
Walbro Corporation & Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 11. PENSION PLANS. (continued)
The following table summarizes the funded status of the Company's domestic
defined benefit pension plan and the related amounts recognized in the
Company's consolidated balance sheets as of December 31, 1994, 1993 and 1992:
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
(In Thousands)
<S> <C> <C> <C>
Actuarial present value of benefit obligation--
Vested.................................................. $(2,319) $(3,134) $(3,182)
Nonvested............................................... (314) (282) (252)
------- ------- -------
Accumulated benefit obligation.......................... (2,633) (3,416) (3,434)
Effects of salary progression........................... -- -- --
------- ------- -------
Projected benefit obligation............................ (2,633) (3,416) (3,434)
------- ------- -------
Plan assets--
Cash equivalents........................................ 321 344 444
Equity securities....................................... 2,438 2,350 --
Fixed income securities................................. -- -- 2,475
------- ------- -------
2,759 2,694 2,919
------- ------- -------
Projected benefit obligation under (over) plan assets..... 126 (722) (515)
Unamortized net asset at transition..................... (75) (97) (152)
Unamortized net (gain) loss............................. (74) 891 736
Adjustment to recognize minimum liability............... -- (1,108) (892)
Unrecognized prior service cost......................... 498 314 259
------- ------- -------
Pension asset (liability) recorded in the
consolidated balance sheets............................. $ 475 $ (722) $ (564)
======= ======= =======
</TABLE>
SFAS No. 87, "Employers' Accounting for Pensions," required the Company to
record a minimum liability as of December 31, 1993 and 1992. The assumption
used in determining the funded status information shown above were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Discount rate.......................... 8.5% 6.5% 6.5%
Long-term rate of return on assets..... 8.5% 6.5% 6.5%
</TABLE>
The Company also sponsors a defined contribution plan under which the Company
will make matching contributions of 50% of each participant's before-tax
contribution (up to 6% of the participant's annual income) and retirement
contribution of up to 3% (subject to change on an annual basis) of a
participant's annual income. The cost of defined contributions charged to
earnings during 1994, 1993 and 1992 was approximately $1,431,000, $1,416,000
and $1,361,000, respectively.
Certain non-union employees, excluding officers, are eligible to
participate in the Walbro Corporation Employee Stock Ownership Plan (ESOP).
The Company will make annual contributions to a trust in the form of either
cash or common stock of the Company. The amount of the annual contribution is
discretionary, except that it must be sufficient to enable the trust to meet
its current obligations. The Company has guaranteed the ESOP's loan and is
obligated to contribute sufficient cash to the trust to repay the loan.
Contribution expense related to the ESOP amounted to $365,000, $302,000 and
$321,000 in 1994, 1993 and 1992, respectively. Contribution expense is net of
dividends of $210,000, $106,000 and $106,000 in 1994, 1993 and 1992,
respectively.
NOTE 12. DISCLOSURES ABOUT DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF
FINANCIAL INSTRUMENTS.
The Company is a party to financial instruments with off-balance sheet risk in
the normal course of business to help meet financing needs and to reduce
exposure to fluctuating foreign currency exchange rates. The Company is
exposed to credit loss in the event of nonperformance by the other parties to
the financial instruments described below. However, the Company does not
anticipate nonperformance by the other parties. The Company does not engage in
trading activities with these financial instruments and does not generally
require collateral or other security to support these financial instruments.
The notional amounts of derivatives summarized below do not represent the
amounts exchanged by the parties and, thus, are not a measure of the exposure
of the Company through its use of derivatives. The amounts exchanged are
calculated on the basis of the notional amounts and the other terms of the
derivatives.
28
<PAGE> 20
Walbro Corporation & Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 12. DISCLOSURES ABOUT DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF
FINANCIAL INSTRUMENTS. (continued)
Financial Instruments with Off-Balance Sheet Risk
The Company enters into various types of contracts to manage its foreign
currency exchange risk and interest rate risk. A summary of these contracts
(notional amounts) as of Decebmer 31 is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Forward currency
exchange Contracts $14,000 $30,000 $31,000
Interest rate swaps -- -- $15,000
</TABLE>
The Company enters into forward currency exchange contracts to
manage its exposure against foreign currency fluctuations related to firm
commitments. As of December 31, 1994, the Company has one forward currency
exchange contract maturing in 1995 which exchanges 86,332,000 French francs.
Total losses on this contract of approximately $1,800,000 were recorded as a
deferred asset. This asset is being recognized based on actual purchases of
the related foreign currency transaction. The amounts included in the equity
in (income) loss of joint ventures in the accompanying consolidated statements
of income related to this contract for the year ending December 31, 1994 was
approximately $600,000.
The Company enters into forward currency exchange contracts to
hedge its equity investments in certain foreign joint ventures. During 1994,
the Company had one forward currency exchange contract, which matured during
1994, which exchanged 44,100,000 French francs. At December 31, 1994, losses
of $1,020,000 on a hedge of a net investment in a foreign joint venture are
included in stockholders' equity.
The Company enters into forward currency exchange contracts to
reduce its exposure against fluctuations in foreign currency exchange rates.
During 1994, the Company had twenty-one forward currency exchange contracts
which matured during 1994, which exchanged 1,133,000,000 Japanese yen,
20,100,000 Deutsche marks, and 15,100,000 Singapore dollars. The amounts
included in foreign currency exchange loss in the accompanying consolidated
statements of income related to these contracts for the year ending December
31, 1994 were approximately $1,200,000.
The Company enters into interest rate swaps to manage its
interest rate risk. As of December 31, 1992, these agreements effectively
converted an aggregate principal amount of $15,000,000 of variable rate
borrowings into fixed rate borrowings with interest rates ranging from 9.50% to
9.75%. These agreements matured during 1993.
Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate
that value:
Cash and short-term financial instruments
The fair values are estimated to be equal to carrying values because of the
short-term, highly liquid nature of these instruments.
Notes receivable
The fair value is estimated using the expected future cash flows discounted
at current interest rates.
Marketable equity securities
The fair value of marketable equity securities is estimated by quoted market
prices when the investment is traded on a public stock exchange. For
investments not publicly traded, a combination of book value and fair market
value of assets is used (Note 3).
Long-term debt
The fair value of the Company's long-term debt is estimated using the expected
future cash flows discounted at the current interest rates offered to the
Company for debt of the same remaining maturities.
Forward currency exchange contracts
The fair value of forward currency exchange contracts is estimated by
obtaining quotes from brokers.
The estimated fair values of the Company's financial instruments are as
follows (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------------------- -------------------- ---------------------
CARRYING FAIR Carrying Fair Carrying Fair
VALUE VALUE Value Value Value Value
-------- ------- --------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Notes receivable................. $ 4,366 $ 4,860 $ 3,616 $ 4,049 $ 1,974 $ 1,974
Long-term debt................... 74,578 73,513 52,800 52,542 56,707 56,422
Forward currency exchange
contracts...................... (1,800) (1,800) -- (73) -- (150)
</TABLE>
29
<PAGE> 21
Walbro Corporation & Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 13. LEASES.
The Company has leased certain of its buildings, equipment and vehicles under
operating leases. The leases involving buildings contain options enabling the
Company to renew the leases at the end of the respective lease terms.
Rent expense was approximately $3,324,000, $2,655,000 and
$2,808,000 in 1994, 1993 and 1992, respectively.
Aggregate minimum future rentals under noncancellable leases are as
follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------- ---------
(in thousands)
<S> <C> <C>
1995 $ 850 $ 2,823
1996 850 2,046
1997 850 1,425
1998 850 833
1999 850 782
Thereafter 1,851 53
------ -------
Total minimum lease payments 6,101 $ 7,962
=======
Amount representing interest 1,391
------
Present value of net future
minimum lease
payments $4,710
======
</TABLE>
NOTE 14. ACCRUED LIABILITIES.
Accrued liabilities consisted of the following at
December 31:
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- ------
(In Thousands)
<S> <C> <C> <C>
Compensation $ 5,123 $ 3,941 $3,957
Income taxes 2,239 1,498 -
Reorganization and restructuring - 754 360
Interest 147 407 413
Other 4,568 4,900 4,151
------- ------- ------
$12,077 $11,500 $8,881
======= ======= ======
</TABLE>
NOTE 15. STOCKHOLDERS' EQUITY.
The Company has a stock rights plan which entitles the holder of each right,
upon the occurrence of certain events, to purchase one one-hundredth of a
share of a new series of preferred stock for $75. Furthermore, if the Company
is involved in a merger or other business combination at any time after the
rights become exercisable, the rights will entitle the holder to buy the number
of shares of common stock of the acquiring company having a market value of
twice the then current exercise price of each right. Alternatively, if a 15%
or more shareholder acquires the Company by means of a reverse merger in which
the Company and its stock survives, or engages in self-dealing transactions
with the Company, or if any person acquires 50% or more of the Company's common
stock, then each right not owned by a 15% or more shareholder will become
exercisable for the number of shares of common stock of the Company having a
market value of twice the then current exercise price of each right. The
rights, which do not have voting rights, expire in December 1998 and may be
redeemed by the Company at a price of $.01 per right at any time prior to their
expiration or the time they become exercisable.
The Company has authorized 1,000,000 shares of $1.00 par value preferred stock.
NOTE 16. REDEEMABLE PREFERRED STOCK.
In connection with the acquisition of the Whitehead Engineered Products Group
(Whitehead) in 1988, the Company reserved 75,000 shares of preferred stock as
Series C Non-Voting Participating Cumulative Preferred Stock. These shares
were released from escrow in 1991 due to the attainment of certain performance
targets by the Company's Whitehead operation. The preferred stock has a $1.00
par value and was redeemable in twelve semi-annual installments commencing
January 1993. This $7.5 million of preferred stock represents additional
purchase price in connection with Whitehead and, as a result, the Company
recorded $7.5 million of additional goodwill in connection with the
acquisition. During 1992, the Company redeemed the preferred stock at a
redemption price of $6.5 million in cash and 30,888 shares of common stock.
30
<PAGE> 22
Walbro Corporation & Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 17. BUSINESS SEGMENT INFORMATION
Selected financial information about the Company's continuing operations by
geographic area is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Net sales to customers:
Domestic $260,710 $215,149 $194,568
Foreign 64,495 58,314 46,848
Net sales between geographic areas 31,094 28,842 28,478
-------- -------- --------
356,299 302,305 269,894
Eliminations (31,094) (28,842) (28,478)
-------- -------- --------
Total net sales $325,205 $273,463 $241,416
======== ======== ========
Operating profit:
Domestic $ 37,040 $ 31,791 $ 32,545
Foreign 6,365 4,650 4,576
-------- -------- --------
43,405 36,441 37,121
Unallocated expenses, net (22,986) (19,300) (19,931)
-------- -------- --------
Income before provision for income
taxes and cumulative effect of
accounting change $ 20,419 $ 17,141 $ 17,190
======== ======== ========
Identifiable assets:
Domestic $224,369 $191,999 $172,974
Foreign 32,997 23,296 20,046
-------- -------- --------
Total identifiable assets $257,366 $215,295 $193,020
======== ======== ========
</TABLE>
The Company's foreign operations are located in the Far East (Japan, Singapore,
Korea and China), Canada and Mexico. Sales between geographic areas are
accounted for at cost plus a margin for profit. Operating profit consists of
total sales less operating expenses excluding general corporate expenses,
interest expense, research and development expense and income taxes.
Identifiable assets are those assets used in the operations in each geographic
area. Export sales from domestic locations were approximately $36,881,000,
$47,876,000 and $30,174,000 for 1994, 1993 and 1992, respectively.
The net assets of the Company's foreign operations were $24,598,000,
$17,240,000 and $12,744,000 at December 31, 1994, 1993 and 1992, respectively.
The Company's share of foreign net income was $3,369,000, $2,843,000 and
$1,941,000 in 1994, 1993 and 1992, respectively.
A majority of the Company's sales are to automobile manufacturing
companies. Sales to certain major customers which exceeded 10% of consolidated
sales are as follows. Sales to one such customer amounted to 30%, 30% and 33%
of consolidated sales in 1994, 1993 and 1992, respectively. Sales to another
such customer amounted to 23%, 21% and 20% of consolidated sales in 1994, 1993
and 1992, respectively.
The Company's operations are in one business segment, the
development, manufacture and sale of fuel systems and components.
NOTE 18. SUPPLEMENTAL CASH FLOW INFORMATION.
In 1994, 1993 and 1992, the Company paid $6,749,000, $4,458,000 and $6,078,000
for income taxes and $4,122,000, $2,591,000 and $3,487,000 for interest,
respectively.
31
<PAGE> 23
Walbro Corporation & Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 19. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Selected quarterly financial information for the years ended December 31, 1994
and 1993, is as follows:
<TABLE>
<CAPTION>
Quarter
First Second Third Fourth Total
----- ------ ----- ------ -----
(In Thousands, Except Per Share Data)
<S> <C> <C> <C> <C> <C>
1994-
Net sales $82,205 $83,976 $75,251 $83,773 $325,205
Cost of sales 64,973 66,335 62,130 68,063 261,501
------- ------- ------- ------- --------
Gross profit $17,232 $17,641 $13,121 $15,710 $ 63,704
======= ======= ======= ======= ========
Net income $ 4,499 $ 4,461 $ 2,974 $ 2,661 $ 14,595
======= ======= ======= ======= ========
Net income per share $ .52 $ .52 $ .35 $ .31 $ 1.70
======= ======= ======= ======= ========
1993-
Net sales $66,903 $71,471 $64,374 $70,715 $273,463
Cost of sales 51,435 55,516 50,604 59,249 216,804
------- ------- ------- ------- --------
Gross profit $15,468 $15,955 $13,770 $11,466 $ 56,659
======= ======= ======= ======= ========
Income before
cumulative effect
of accounting
change $ 3,746 $ 3,889 $ 3,112 $ 1,820 $ 12,567
======= ======= ======= ======= ========
Net income $ 846 $ 3,889 $ 3,112 $ 1,820 $ 9,667
======= ======= ======= ======= ========
Income per share
before cumulative
effect of
accounting
change $ .44 $ .45 $ .36 $ .21 $ 1.47
======= ======= ======= ======= ========
Net income per share $ .10 $ .45 $ .36 $ .21 $ 1.13
======= ======= ======= ======= ========
</TABLE>
NOTE 20. SUBSEQUENT EVENT.
In January 1995, the Company signed a letter of intent to acquire the plastic
fuel tank division of Dyno Industrier AS (Dyno), Oslo, Norway. The plastic
fuel tank division of Dyno supplies plastic fuel tank systems to most European
vehicle manufacturers and has operations in France, Spain, Norway, Great
Britain, Germany and Belgium. The acquisition is subject to several
conditions, including the execution of a definitive purchase agreement.
32
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF WALBRO CORPORATION
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY JURISDICTION OF INCORPORATION
------------------ -----------------------------
<S> <C>
Walbro Automotive Corporation Delaware
Walbro Engine Management Corporation Delaware
Walbro Singapore Pte. Ltd. Republic of Singapore
Walbro Japan, Inc. Japan
Walbro Automotive Japan, Inc. Japan
Walbro de Mexico, S.A. DE C.V. Mexico
Whitehead Engineered Products, Inc. Delaware
Sharon Manufacturing Company Michigan
SEM-Walbro Corporation Delaware
Walbro GmbH Germany
Walbro Netherlands B.V. Netherlands
Walbro Korea, Ltd. Republic of Korea
Fujian Hualong Carburetor Co., Ltd. People's Republic of China
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report dated February 14, 1995, included in this Form 10-K, into the
Company's previously filed Registration Statements File Nos. 33-20841, 33-32068
and 33-48562.
ARTHUR ANDERSEN LLP
Detroit, Michigan,
March 24, 1995.
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<EXCHANGE-RATE> 1
<CASH> 4,540
<SECURITIES> 0
<RECEIVABLES> 66,333
<ALLOWANCES> 0
<INVENTORY> 31,439
<CURRENT-ASSETS> 109,976
<PP&E> 139,029
<DEPRECIATION> 50,737
<TOTAL-ASSETS> 257,366
<CURRENT-LIABILITIES> 51,598
<BONDS> 66,136
<COMMON> 4,282
0
0
<OTHER-SE> 123,633
<TOTAL-LIABILITY-AND-EQUITY> 257,366
<SALES> 325,205
<TOTAL-REVENUES> 325,205
<CGS> 261,501
<TOTAL-COSTS> 261,501
<OTHER-EXPENSES> 42,031
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,771
<INCOME-PRETAX> 17,902
<INCOME-TAX> 5,824
<INCOME-CONTINUING> 14,595
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,595
<EPS-PRIMARY> 1.70
<EPS-DILUTED> 1.70
</TABLE>
